Now, that support for the external deficit and the dollar has been taken away.
Foreign central banks financed the remainder of our external deficit by also piling up dollar reserves.
In time, those adjustments should cut both the U.S. external deficit and China's surplus.
By definition, the sum of private and government net saving is equal to the external deficit.
Arithmetically, higher government saving and a bigger external deficit imply a further fall in private net saving.
It should eventually narrow the external deficit, by boosting exports and limiting imports.
As with an external deficit, adjustment to a related internal deficit is ultimately the same under any exchange rate regime.
The country remains in a growth recession as the private sector reduces debt and the external deficit is worked down.
Since the current-account balance equals the net saving of the private and public sectors, a budget deficit boosts the external deficit.
The ending of the tax break in December has increased the need for inward investment by foreigners to finance the external deficit.
ECONOMIST: It is time for the yen to climb and the dollar to fall
America's large external deficit could be sustained for years as Asian central banks kept their currencies cheap in order to foster export-led growth.
Yet the chief reason they campaign for a measured U.S. buck-weakening program is to "correct" our growing external deficit and avoid a dollar crash and financial market chaos.
As these deficits shrink, America's external deficit will certainly widen.
"The bank has made it clear that it also needs to see a sustained drop in consumer price inflation and, perhaps most importantly, a run of better external deficit numbers, " he added.
Over the past few years, the dollar has been strong mainly because foreign investors have been happy to finance America's external deficit, thanks to rapid economic growth and high returns, especially in its equity market.
Milton Friedman and others reminded us decades ago that such internal adjustments necessary to reverse an external deficit were ultimately the same under a gold standard, flexible exchange rates, or some hybrid exchange rate regime.
The upshot is that the U.S. external financing deficit may actually grow at just the same time as China's ability and appetite to fund it evaporates.
Since our internal and external deficits are part of the same problem, failure to deal with the internal deficit will have external repercussions.
FORBES: Tough Truths About The Dollar, The Debt and The Economy
But once the state has eliminated its primary deficit, it will not need external finance to fund its day-to-day operations.
With the Eurozone expected to shrink a further 0.1% this year, after contracting 0.6% in 2012, European policymakers will have to work to achieve more symmetrical adjustment shared between core external surplus members, namely Germany, and peripheral deficit countries, Kraemer argues.
FORBES: Spain, Italy, And Even Greece Sell Bonds, But Europe's Crisis Is Far From Over
But if the numbers are right, Russia is heading towards a twin deficit economy, where the government budget and external trade balance are negative.
Analysts give diverse reasons for the meltdown, most pointing to the current account deficit fueled by numerous infrastructure mega-projects that rely on external financing in U.S. dollars.
That makes the economy more exposed to external shocks, such as swings in confidence among the foreign investors who fund the bulk of the deficit.
After external credit had dried up, the government in July declared that it would at once eliminate its fiscal deficit.
应用推荐