Reduced government borrowing would let the country export more capital, buying assets in faster-growing regions of the world.
How does that work?
In order for us to invest overseas we would need to be exporting capital: that means running a trade suplus, no?
Whatever the effect of more or less govt borrowing, given the point that the balance of trade has to balance, the only way we can be nett exporters of capital is if we are also nett exporters of goods and services.
No?
1 response so far ↓
1 Matthew // Aug 24, 2008 at 12:25 pm
Well it used to be (in the US) argued that the trade deficit reflected the budget deficit, and although it is less so now for various reasons the mechanism I think would be that lower government borrowing/Greater exports of capital would decrease interest rates and thus the exchange rate thus boosting exports and lowering imports.
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