If I trade X dollars for Y amount of goods, I by necessity must owe x dollars.
That "IOU" can be transformed in many different ways. But you can't erase it (without consequences that would end the flow of goods). If we have a trade deficit we have X dollars of IOU now in our economy that most go somewhere.
Where does it go?
Into debt, and eventually erased by either paying, inflating away, or printing money.
China has massive foreign reserves holdings, and it's been trying to hide that recently with some clever numerical juggling by having state banks hold it all (someone at the top said they have to reduce holdings after Russia got screwed).
I'm not 100 on how you can have internal debt and external surplus, sorry. You'll have to talk to someone smarter for that.
> I'm not 100 on how you can have internal debt and external surplus, sorry. You'll have to talk to someone smarter for that.
In the simplest case, suppose the government of an export-heavy country such as Germany, Japan or China simply stopped collecting taxes for a year. It would be self-evident that their government would run a large budgetary deficit no matter how large their export surplus for that year was.
