[MUSIC] Now if we think of the balance of payments as this global marketplace, this gives us a way of thinking about the current account. And in just a moment, we'll be looking at different countries, and seeing how this plays itself out in their transactions with the rest of the world. But if we have a positive current account, if we have a country with a current account surplus, that's a nation that spends less than it receives, or spends less than it produces. And therefore, it's lending money to the rest of the world and it's accumulating assets in the rest of the world. The nation with the negative current account or with the current account deficit is a country that spends more than it receives or spends more than it produces. And the only way can do this is by borrowing from the rest of the world like that country in the marketplace that sold 100 and spend 120. Now what I want you to see here, and this is an important misconception we have in the public debate, kind of a stereotype we have. We tend to think, that if a country has a surplus, it's a better country. It's a more competitive country, it's a more efficient country. And if you think about the balance of payments in the way that I've described it to you, you can see that's not true. The deficit countries may be very competitive. Imagine a country that has a stall in that market that sells the best goods in the entire market. It still could be a country that spends more than it sells, okay? If it likes to consumes, if it tends to consume more than it produces, if it tends to buy as an owner of the store in the market more than it sell, it would be a deficit country. And that's not because it sells poor goods, or it's uncompetitive, it's the spending patterns that determines its deficit. On the other hand, you might have a country there with the store that sells really shabby goods, very poor quality goods, and that country could perfectly well be a country that saves some money, okay. So it doesn't sell very much, but it decides not to spend in other countries stalls everything that it earned. And so that country with very poor quality goods could be a surplus country. So you see the bottom line here is not, I have a surplus because I'm competitive, because I'm better, because I have high quality goods. I have a deficit because I'm uncompetitive, no. I have a surplus because I don't spend. Everything I earn, I have a deficit, because I spend more than I earn. So this is the way we really need to interpret the current account surpluses and deficits. They don't come from competitiveness, they don't necessarily even come from the value of the currency, they come from the country's tendency to overspend or to save. [MUSIC]