Posted 2 years ago on Nov. 21, 2012, 5:16 p.m. EST by ciaoant1
(16)
This content is user submitted and not an official statement

[...] Everyone knows that almost all Western nations have been running trade deficits for decades know, and that it was once -famously- said that "deficits don't matter". This may sound strange, but I kind of agree:

It's not the 'deficits/debts' themselves that matter, rather than the 'ability to repay these debts in the future through future productivity" that actually matters. For example, there are no people that would loan me 1.000.000$, because noone seriously believes that I will be able to produce enough wealth in the future to repay such a loan. But there are a lot of people that would gladly loan 1.000.000$ to APPLE, because they think (rightly or wrongly so) that APPLE will be able to produce enough wealth in the future to repay this loan (+ interest of course, why else would the bondholders loan the money?).

The problem today is that most corporations (AND countries) have very little (or zero) CREDIBILITY (i.e noone believes that they will be able to repay their loans).

This is why deficits didn't used to matter, but now they do: People used to think that "countries are always able to repay their loans", so they are always credible, and thus "their deficits don't matter [because they will be able to repay their debts in the future through future productivity]". Now, their credibility is gone, so now "deficits matter"...