Maybe my understanding of how the real world works is now clouding my ability to understand the theoretical because I aced this stuff in college, but now can’t wrap my head around it. Yes, I’ve read all the similar questions but I still don’t see a clear answer to the question. I’m guessing I’m getting tripped up the semantics but could use some help in figuring this out.
Why exactly does a trade deficit require foreign borrowing? If I decide to buy some French wine and go to my banker for a loan, who in turn creates a demand deposit, increasing the money supply, why does my purchase of French wine require foreign borrowing? A bottle of French wine to anyone who can help me understand this! Thanks.