A country with a chronic external deficit has to be able to attract capital

When a country has a chronic external deficit, it has to be able to constantly attract capital, which requires: A favourable economic environment; A political situation that inspires confidence. If this country loses its ability to attract capital, it has to eliminate its external deficit , which requires a recession , or it must attract speculative capital, which requires a sharp depreciation of the exchange rate. We examine the situation of countries that have had large external deficits in recent years: the United States, the United Kingdom, Argentina, Brazil, Turkey, South Africa and India. The confidence in the economic and political situation required to attract capital can be observed only in the United States ( which is also helped by the dollar’s reserve currency role). All the other countries have suffered either a fall in growth, a sharp exchange rate depreciation or both.