ABSTRACT
This chapter focuses on the foreign trade balance. Any country running a trade surplus is taking a risk inherent in accumulating fiat foreign currency. The importing country is getting real goods and services, and agreeing only to later export at whatever prices it pleases to other countries holding its currency. If inflation results from its attempt to run at full capacity, the government deficit can easily be reduced. The same cannot be said on the trade deficit of an import-dependent nation. If the export market contracts, exporting firms will lay off workers who may not be able to find replacement jobs in the domestic industries. But in this case if a country can find another way of guaranteeing full employment it does not need to depend upon its export sector. Private debt, the trade deficit, and the government's deficit may all be described by the same language.
