Net foreign direct investment has been a (significant) positive number for the US since the mid
1980
Solution
The US runs a huge Current Account Deficit (CAD) with its trading partners. A deficit in current
account must be matched by a surplus in capital account. If it doesn\'t happen then the country
will fall prey to a BOP crisis. Now, the trading partners fund the US deficit by buying their
treasuries and bond. When these securities will mature, the US will owe them the principal and
the interest on it.
The reason why it may not be a concern is -
The US runs a fiat currency system wherein it can print as much dollars as it wants. A nation is
likely to default on its own currency. Also, due to structural reasons the inflationary
consequences of such a policy are not likely to happen. Also, in the international monetary
system the dollar enjoys the status of a reserve currency. So, it can pay off its loans in dollars. If
US continues to run a deficit, then it can borrow more dollars from its trading partners..
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Net foreign direct investment has been a (significant) positive numb.pdf
1. Net foreign direct investment has been a (significant) positive number for the US since the mid
1980
Solution
The US runs a huge Current Account Deficit (CAD) with its trading partners. A deficit in current
account must be matched by a surplus in capital account. If it doesn't happen then the country
will fall prey to a BOP crisis. Now, the trading partners fund the US deficit by buying their
treasuries and bond. When these securities will mature, the US will owe them the principal and
the interest on it.
The reason why it may not be a concern is -
The US runs a fiat currency system wherein it can print as much dollars as it wants. A nation is
likely to default on its own currency. Also, due to structural reasons the inflationary
consequences of such a policy are not likely to happen. Also, in the international monetary
system the dollar enjoys the status of a reserve currency. So, it can pay off its loans in dollars. If
US continues to run a deficit, then it can borrow more dollars from its trading partners.
