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View Diary: ERW 3.2: The Current Current Account Blowout (18 comments)

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  •  The dollar exchange rate is total demand and ... (0+ / 0-)

    ... supply for dollars.

    Trade is less than a fifth of total Balance of Payment transactions.

    So a massive trade deficit, compared to total GDP, can be offset by a milder capital surplus, compared to total wealth.

    And that is what is happening. The Chinese regularly acquire large amounts of US dollars as part of the process of keeping their exchange rate at a low rate ("pegging low"), and that kind of demand for dollars for financial manipulations offsets the trade deficit.

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