The balance of payments is measured in terms of surplus or deficit on one account or the other. If a country spends more than it earn, it has a current account deficit and must borrow from the global economy, creating a capital account surplus. Similarly, if you spend less than you earn, you have a current account surplus, and you lend money out, creating a capital account deficit.Realist argue it is better to have a capital account deficit – it is better to be a lender than a borrower – this increases the relative power of the state – a state can place conditions on new loans, such as the United States did vis-à-vis the Asian economies in the 1990’s.Liberals, on the other hand, argue that it is better to create mutual dependencies in the global economy. Current account surpluses and deficits will come and go, because of high volume of trade flows. The problem is chronic balance of payments and debt imbalances – a lender faces the strong possibility of never being paid back, if the borrower faces constant economic crises – this will lead to a slowdown in trade.
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