Current account balances should always be analysed together with capital flows

Generally speaking, countries are criticised when they run large external surpluses (like Germany) or chronic external deficits (like the United States). The former are accused of not stimulating sufficiently their domestic demand; the latter of threatening global financial stability by continuously building up external debt. But any analysis of an external surplus or deficit ( current account balance ) must be combined with an analysis of capital flows in the country’s balance of payments: Germany’s external surplus poses a problem not in itself, but because it is not lent to the other euro-zone countries and because it results in the euro zone investing in bonds in the rest of the world, which is not very efficient for the euro zone or for the rest of the world; The US external deficit is not much of a problem as long as it is related to the country’s role as the “world’s banker”: the rest of the world invests massively in risk-free securities in the United States , the United States finances risky investments in the rest of the world , and the current account balance is small between these two large capital flows. Today (since 2014), the United States no longer plays this global intermediation role, which is reason to be much more concerned about the US external deficit.