WHY DOES THE TRADE DEFICIT MEAN FOREIGN COMPANIES ARE BUYING MORE US BONDS AND INVESTING MORE IN US COMPANIES?

I assimilate change of payments… But i can’t unequivocally assimilate because the income you use to buy unfamiliar products has to come behind to America.

Please help!

{ 1 comment… read it below or add one }

Darth Severus May 2, 2010 at 5:08 am

Simply the world to two parts – US and foreign countries.

Trade deficit means foreign countries sell to US more than they buy from it. This leaves them with surplus dollars on their hands.

A wise man never just sits on the money, he invests them. Where can you invest dollars? Only into US companies or government bonds.

Dollars are used for trade and investment outside of US, but that all is happening within the “foreign countries” object. In the end, all money returns to US either as payment for goods or investment.

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