Question

Ow does this explain the fact that while the u.S has a constant and huge trade deficit, its currency isnt depreciating fast?

Answer 1

In recent years, the U.S. external deficit has attracted considerable attention from academics, policymakers and the media. One manifestation of recent trends that has raised concerns is a growing trade deficit—the difference between U.S. exports and imports of goods and services. More generally, it is useful to consider the broader concept of the current account, which includes earnings on investments, as well as trade in goods and services. As shown in the figure below, the U.S. current account deficit has been increasing as a percentage of gross domestic product (GDP) since the early 1990s, with the present deficit exceeding 6 percent..1

When a country runs a current account deficit, its purchases of goods and services from abroad exceed its sales of goods and services to foreign buyers. At the same time, the country is necessarily selling assets to foreigners, net of its purchases of assets abroad, in an amount equal to the current account deficit. Consequently, as current account deficits have accumulated over time, the net international investment position of the United States—the difference between U.S.-owned assets abroad and foreign-owned assets in the United States—has also grown ever larger. In light of these trends, a fundamental question is: How dangerous is the current account deficit?