People say that our country has an international balance of payments problem - a trade deficit - we're buying more from other countries than they're buying from us. I say so what! Trade deficits are all over the place. For example, I buy more from my grocer than he buys from me. What would you have Congress do about that? Actually, in the economic sense, there's no trade deficit at all.

When I spend $100 at my grocer's, the value of my goods and services account rises by $100 and my capital account (money) falls by $100. Likewise my grocer's goods and services account falls by $100 and his capital account rises by $100. Where's the imbalance? The same analysis would apply if my grocer was in Korea instead of down the street.

When people talk about international trade deficits, they're talking about what's happening in the current account and ignoring the surpluses in the capital account. A foreigner might sell us cars but instead of importing goods like wheat, wood or computers he decides to hold cash, stocks and bonds.

In my book it's great to live in a country in which foreigners have so much confidence in that they are happy to accept slips of paper - cash, stocks and bonds - in exchange for goods and services.

I'm Walter Williams
Nightly Business Report
January 2002
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