The United States is a debtor nation, just like the poorest states in Africa, La

Question

The United States is a debtor nation, just like the poorest states in Africa, Latin America, and Asia. For most of the past 30 years the United States has been piling up large trade deficits. The current account has now reached a deficit of 6 percent of GDP, and must be financed by capital inflows. Foreigners must purchase large amounts of US property, stocks, bonds, bank deposits, and currency, or the current account deficit cannot be financed.

A.
Explain why current account deficit "must be financed by capital inflows."

B.
Under what circumstances should the debtor nation status of the United States be a concern?

Explanation / Answer

a) Current deficit must be financed by capital inflows because a debt must be finance by more debt.

b) Under no circumstances should the debtor nation like US be concerned because our debt is only backed by useless and essentially worthless paper or fiat money not backed by land, or any real hard assets. If time comes and America really goes bankrupt, all it takes is to print off trillions of dollars of paper money and give it to our creditors.

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