Current Account Surpluses are Not Always a Sign of Strength

Trade and Balance of PaymentsLeave a comment

Intro: While a current account surplus is preferable to a current account deficit all else equal, little information can be gleaned from the current account alone. The important point to note is the country’s savings rate.  As explained previously in ‘The Current Account Reflects the Saving-Investment Relationship’ a current account surplus reflects either a low…

Why Interest Rate Cuts Rarely Stimulate Economic Growth

Economic Growth and the Business CycleLeave a comment

Intro: Despite the almost universal belief that central bank interest rate cuts provide a boost to the economy, most of the time they have little-to-no stimulatory effect. Rate cuts usually just reflect prior changes in the real economy’s savings/investment balance, and typically provide little insight into future growth. The financial media is fixated on interest…