We have now completed analysis of the current account, But how did the United States “finance” its $339 billion current-account deficit in 1999? It must have either borrowed or reduced its foreign assets, for by definition, when you buy something, you must either pay for it or borrow, for it. This identity means that 1M balance of international payments as a whole must by definition show a final zero balance.
Financial-account transactions are asset transactions between Americans and foreigners. They occur, for example, when a Japanese pension fund buys U.S. government securities or when an American buys stock in a German firm. . Credits and debits are somewhat more complicated in the financial accounts. The general rule,
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