By a twin deficit (of English twin deficit, would have actually to be translated according to opinion of some with double deficit. In the English Wikipedia reads the article even "double deficit".) one talks, if in a country both a budgetary deficit of the state and a deficit on the balance of payments on current account exist.

A deficit on the balance of payments on current account usually means that the respective national economy imports more goods (goods and services) than exported (if one the other partial balances of the balance of payments on current account except eight leaves). In other words, the national economy produces less, than it consumes. Normally such a constellation has as a consequence that the currency at value loses. In such a case the prices of the domestic goods sink and can be offered in the world (foreign country) more cheaply. In the reversal conclusion the import goods in the relationship become more expensive. Therefore more domestic goods of the remaining world are inquired and the net exports of the respective national economy to rise. Over this mechanism the external contribution resembles itself. Since however a (by the devaluation of the currency) is converted faster, as the quantity amendment of the goods stream, first the deficit is intensified; on a long-term basis it would have to recover however. This effect would look graphic like a J, therefore one speaks also of the J-curve-effect.

The budgetary deficit describes the burden of debts of the state, based on the GROS DOMESTIC PRODUCT. Since the state inquires increased, it can come on the markets either to a depletion effect or a multiplicator effect (S. also deficit spending). Due to the increased demand of the state, the interest increases. Thus the private investments decrease/go back. Higher interest means in an open national economy however that the respective country becomes interesting for capital investors.

By flowing the capital (for example direct investments) the deficits must be financed. However this kind of financing on very thin ice moves, because the economy and the currency act very unstably, since they more by the confidence of the investors are supported. If the confidence is omitted or another country becomes more attractive for plants, perhaps then the national economy concerned in itself can break down (financial crisis).

Most prominent example of a twin deficit are the USA, which initially develop the deficits gradually since beginning of the 80's under Ronald Reagan. The welcome possibility of financing the deficits with foreign capital decreases/goes back to the former Minister of Finance O'Neill. Since then one speaks also of the O'Neill doctrine ("it is our deficit, but your problem. "). Its relevant expressions (on a G7 summit) remained however not uncritical.

Articles in category "Twin deficit"

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Related Websites

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• The twin deficits -- trade and budget -- loom - Mar. 11, 2003
  The twin terrors of the 1980s, the US deficits in trade and the federal budget, are nearing record highs again.


• The Twin Deficits: Myths and Truths - Mises Institute
  The Ludwig von Mises Institute is the research and educational center of classical liberalism and the Austrian School of economics.


• The Twin-Deficit Identity
  The twin deficit identity is derived by accounting for the money flows into ... To turn this identity into the "twin-deficit" identity we must merely take ...