General Discussion
In reply to the discussion: For our isolationistic nationalism loving DU'ers who want the world to be a bigger place [View all]mathematic
(1,439 posts)It's true that there's an accounting identity in there. Outflow = inflow, there's no other way. However, this does not mean what you claim, that the trade deficit adds to the national debt. Surely you've heard of Japan?
The accounting identity can be met with either public or private international borrowing.
The accounting identity does not mean that a decreasing trade balance causes an increasing national debt.
The accounting identity is consistent with a trade surplus and increasing national debt. Japan's trade deficit last year (due to the earthquake) was the first in 31 years. How does your "basic law of economics" explain their ever increasing national debt?
The accounting identity does not imply that any of these things CAUSE the others because outflow = inflow can also adjust by changes in a currency's value (i.e. currency value changes to make the accounting identity true given the demand for imports, exports, and international borrowing)
Unfortunately there's no easy way to correct your superficial and incorrect knowledge of economics.