The Economist magazine leads this week with an article on Germany’s large current account surplus and the problems it is causing the rest of the world.
This surplus, which means that Germany is lending its equivalent abroad, is equal to the excess of national saving over national investment.
It means that the rest of the world is running a current account deficit with Germany, since the sum of all the world’s current account surpluses and deficits is zero. If the rest of the world is running an overall deficit with Germany, this means that it is accumulating debt, funded by Germany lending its net savings, or the savings that are not invested domestically.
I have discussed these matters in previous posts, but the article cited above makes a useful point. The potential for reducing the German current account surplus is being played out as a conflict between economic and institutional forces. Continue reading