[MUSIC]
We've been talking about the different kinds of imbalances, deficits and surplus.
We're going to start looking at the moment at countries that are deficit countries
and surplus countries.
But I just want to underline before we turn to that again, what they mean and
why they are a problem, or if they are a problem, so that we can step into how
a country could correct its current account deficit or surplus.
We've said, and I've been stressing it through the previous sections,
a current account surplus happens because a country consumes
less than it produces or because saving rates are high.
So we have some countries in the world, and we could mention Germany,
we could mention Japan, we could mention China,
where they're current account surpluses because they have very high savings.
And as we said when we were thinking about at global marketplace,
these countries lend their savings to the rest of the world so
other countries will buy their output.
In other words, think about this country, they baked a cake, right?
They eat C plus I plus G out of the cake, and they've got something left over.
They need to get rid of it, okay?
So they lend the money to the rest of the world so
they will buy their excess output.
Is this a problem?
Well, no, if you've got a good place to lend your savings abroad,
if you're pretty sure you'll get it back.
If the foreigners who borrow your money are going to repay it,
then it's not a problem.
You should also remember that these countries are very dependent
on the rest of the world.
They need foreign demand to buy that excess output they didn't eat,
the piece of their cake that they didn't eat domestically.
So if foreigners will borrow money from them and
buy that extra piece, these countries can continue to grow,
they can continue to retain their size, and have a high savings rate.
Now, we've also said that the current account deficit occurs because a country
consumes more than it produces.
It spends more than it earns because savings rates are low or
because the country is a borrower, okay?
So this country is borrowing from the rest of the world in order to,
it bake the cake, right?
It eats the whole cake and it needs some more.
So it's borrowing from the rest of the world so it can buy that extra cake,
to satisfy its excess consumption.
Is this a problem?
Well, not if other countries are willing to lend it,
the money, to buy the extra cake, right?
Not if other countries are willing to lend them money to sustain this excess
consumption.
Now, of course, they have to be willing to lend them the money and
they have to be willing to charge reasonable rates on those loans.
So if the country can get abundant money like the United States does,
it's a current account deficit country,
the rest of the world is happy to lend it money at low rates.
Then, it's fine to be running this deficit.
Of course, we have to remember that, that debt is increasing every year.
Could there come a point where that total debt is too high?
That's possible,