Some economists who oppose trade deficits see them as a symptom, rather than a cause, of trouble, specifically bad central bank policy. They believe that trade deficits arise from loose monetary policy. A rapidly growing money supply boosts demand, including demand for imports. This has two effects: First, it generates inflationary pressure, some of which is “exported” to other nations, in the form of higher prices over there. Second, it directs too much investment in other nations into export industries. These nations' economies then suffer when America hits a recession and imports less.
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