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Current Account Deficit and Balance of Payments

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costargh:
Two things confuse me in economics.

1.Current Account Deficit
2.Balance of Payments

I can't get my head around it... oh and also distinguishing the CAD from NFD

help me

chid:
Think of the Current Account as one half of a scale. The CAD is a record of our current trading position. Since it is in deficit (mainly due to the substantial net incomes deficit) it must be financed. This is where the other half of the scale, the Capital and Financial Account comes in. Collectively, since the Capital and financial Account 'balances' out the deficit on Current Account, they are called the Balance of Payments. 

Hope that helped.  :)

costargh:
Thanks. So how is that different to NFD


Maybe, I'll just read up on it again and then if I still don't get it Ill ask.

chid:
The Net Foreign Debt represents the money Australia owes overseas less the money overseas individuals and institutions owe us. The CAD is a yearly record of Australia's current trading position. Since Australia import more than we export the Current Account is in Deficit. Despite this distinction, however, the CAD and the NFD are closely related. The interest payable on Australia's large NFD appears as an income deficit in the Current Account (like an 'income import'). However, then overseas borrowing (lack of domestic savings in Australia) to finance this add in turn to the NFD. And we get a vicious cycle.  

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