finance question

Doug Henwood dhenwood at
Wed Jul 8 19:11:12 PDT 1998

christian a. gregory wrote:

>question: how might i explain the difference between "capital account" and
>"current account" balances?

They're mirror images. A surplus (or deficit) on the current account has to be invested (or financed). So, a country like the U.S. that runs a very large current account deficit, has to borrow that amount abroad; the outflow on the current account is offset by the inflow on the capital account. When you consume more than your income, your debt rises; when you consume less, your savings rise. Or, if you enjoy/suffer an inflow/outflow of capital, you've got to do something with the money: so Mexico in the early 1990s had a capital inflow that was offset by big current account deficits.


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