One can always doubt economic theory. There are many reasons why, for example, a seemingly logical concept like purchasing power parity (exchange rates should equal price differences between countries) does not hold true most of the time. However, accounting rules (even macroeconomic accounting rules) are a much different matter because they are tautologies. In rhetoric, a tautology is a repetition of the same: “blue is blue”. In logic, a tautology refers to a universal truth that is always valid and therefore has no exceptions. This is the stuff that accounting rules are made of.
Accounting rules are tautologies because, for example, per its definition a balance sheet's right-hand side is ex-post always equal to its left-hand side. Unfortunately, our politicians do not appear very familiar with accounting tautologies—judging by the current economic spats between Germany and Greece or the US and China. If these imbalance problems are to be solved, the accounting rules behind them need to be understood. The distressing fact is, however, that even if our politicians achieve this understanding, they appear unlikely to address the hard choices it will lead them to.
In a closed economy, on a national level the summing up of the balance sheets of consumers, firms and the government would net out to zero. This means that the savings of consumers would be split between investments by firms and the government's deficit. If consumers are not saving but instead indebting themselves, then it would mean either that the government would have to run a surplus or that firms would have to disinvest—or a combination of both.
In an open economy, this restriction no longer holds sway. Hence consumers, governments and firms can all live above their means by indebting themselves against the rest of the world. Such an economy would then be characterized by a current account deficit. The opposite of this is an economy that is living below its means and would therefore be characterized by a current account surplus.
The recent financial crisis has affected many countries because of an excessive indebting of households, which were consuming too much and buying too much real estate. When the debt became suddenly unbearable, households started to deleverage and this sudden lack of consumption pushed the economies into deep recessions. To mitigate those recessions, governments had to step in and indebt themselves instead of consumers. Now rising government debts are also being questioned. However, the problem is neither the debt of consumers nor the debt of governments, but plain and simple the debt of countries.
Ultimately, debtor nations have to live below their means and start to pay down some of the debt they piled on during the excess years—and the only way they can do this is by posting trade surpluses.
Before the financial crisis hit, the world was in a state of symbiosis between creditor and debtor countries. The former would drive their growth through exports while the latter would focus on domestic demand, which was partly financed by the export countries. This symbiosis has now broken down. Debtor nations need to shrink their overall debt. But creditor nations like China and Germany, while finger-pointing at the supposed profligacy of debtor nations, are unwilling or unable to run trade deficits and their domestic demand is only picking up slowly if at all. Hence, debtor nations are having difficulty trying to achieve trade surpluses.
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