The fighting twins

By Henry CK Liu

In monetary economics, the trade deficit and the fiscal deficit are referred to as the "twin deficits", as if they were genetically related twins merely because they both contribute to increases in public debt. Yet these two deficits are genetically opposite and can act like fighting twins to neutralize one another in their adverse economic effects.

A fiscal deficit is created by a government spending in excess of revenue in the domestic economy. The external penalty of a persistent fiscal deficit is the devaluation of the exchange rate of the domestic currency in foreign trade.