>So theoretically the exchange rate adjusts to keep the two in balance?
>I'm just trying to understand why the conventional wisdom says the
>current account gap will one day push down the dollar.
They're supposed to be in balance by definition. Current account surplus means money that must be invested abroad = capital account outflow; current account deficit means money must be borrowed abroad = capital account inflow.
As for the c/a gap pushing down the dollar: if you run persistent deficits, it's a sign your real sector isn't competitive and your foreign debt is mounting, scaring away investors. It also means that lots of your currency is flowing abroad, depressing its international value.
Doug