The Crashing Down Now blog has a post entitled, The U.S. Account Balance?, which discussed the CIA World Factbook rank order of each country's current account balance. I've never even heard of a country's current account balance, and so I was surprised to learn that the U.S. has the largest negative balance of any other country in the world! The current U.S. balance is $ -747,100,000,000! And China has the greatest surplus! China's current balance is $363,300,000,000!
This might make sense to the folks out there who took more than one course in economics, but it baffled me. I did a quick internet search and read a couple of articles. All I really learned is that there is more than one way to calculate a country's account balance and each calculation reveals something different about the country. I particularly liked an article published by the IMF entitled, Do Current Account Deficits Matter? This article elucidated three ways of measuring a country's current account balance. One formulation of the current account balance can be expressed as the difference between national (both public and private) savings and investment. For instance, advanced economies like the U.S. invest in developing countries like China, and, as a consequence, the U.S. has a deficit and China has a surplus.
The IMF article's authors went on to ask whether a country should run a current account deficit (borrow more), and it said that it "depends on the extent of its foreign liabilities (its external debt) and on whether the borrowing will be financing investment that has a higher marginal product than the interest rate (or rate of return) the country has to pay on its foreign liabilities." It warned that a country should avoid running at a deficit for too long or else a country might experience an abrupt reversal of financing. Some causes of a reversal could be "overvalued real exchange rate, inadequate foreign exchange reserves, excessively fast domestic credit growth, unfavorable terms of trade shocks, low growth in partner countries, and higher interest rates in industrial countries influence the occurrence of reversals." Aren't some of these causes occurring right now? The authors of the article also inquired whether deficits are bad and their answer was simply, "It depends." And that is why I only took one economics class.
I'm not sure if I really learned anything from my cursory investigation, but I have to agree with the author of Crashing Down Now, who said current account balances are just one piece of the puzzle and, "ultimately, it's pretty hilarious."