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I often hear phrases like country XYZ "finances its current account deficit through flows in its financial account". i have a tough time understanding this idea of "financing" a current account deficit and why it happens with certainty.

i understand there is an identity that says: current account + financial account + capital account = 0. so, if the first term is negative than the sum of the second two must offset, and i suppose that is what is meant by financing - but it is not intuitively clear to me why this must be the case

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  • $\begingroup$ Shouldn't be the sentence read like this : "When a country runs a current account deficit, it is building up liabilities to the rest of the world that are financed by flows in the financial account." $\endgroup$
    – mootmoot
    Commented Dec 1, 2016 at 16:12
  • $\begingroup$ yes, sure - but what precisely does this mean? $\endgroup$
    – user11302
    Commented Dec 2, 2016 at 2:59

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