U.S. Current Account Deficit
The United States' current account deficit balance stood at a record $665.9 billion dollars at the end of 2004. That's right, billion with a b. The Commerce Department's announcement of this huge deficit caused the dollar to fall even lower against the yen and euro. The conventional wisdom is that the U.S.'s dependency on foreign money to fund its current account deficit will eventually lead to the crash of the dollar. However, top Federal Reserve officials disagree. According to Fed Governor Ben S. Bernanke, the ever-growing deficit is not the result of tax cuts or purchases of foreign goods by U.S. consumers but from what he refers to as a "global savings glut."
Many foreign countries seeking returns higher than those available at home have invested in the United States. Workers in the rapidly aging societies of Japan and Europe have also invested in the U.S. market. The Treasury Department reported that foreign investors bought $91.5 billion worth of financial assets in the U.S. in January 2005 compared to the U.S.'s $58.3 billion trade deficit in the same period. According to Mr. Bernanke's theory, the huge inflows of foreign investment are holding down interest rates in the U.S. allowing consumers to spend more on domestic and foreign goods and the federal government to run up large budget deficits.
Fed officials feel that the current account deficit will eventually decrease. The large retiree populations in Europe and Japan will begin to draw down their savings to spend on goods and services, possibly some of them from the United States. Foreign governments will begin to reap the benefits of the savings that they invested in the U.S.
I agree that the U.S. current account woes are not as bleak as some feel. Foreign investment has been a large source of the imbalance. However, the continual fall of the dollar is particularly troubling, especially related to the euro. Some actions must be taken in order to prevent the eventual crash of the dollar.
You may read more on this topicin the article entitled "The Deficit: The Sky May Not be Falling."
Many foreign countries seeking returns higher than those available at home have invested in the United States. Workers in the rapidly aging societies of Japan and Europe have also invested in the U.S. market. The Treasury Department reported that foreign investors bought $91.5 billion worth of financial assets in the U.S. in January 2005 compared to the U.S.'s $58.3 billion trade deficit in the same period. According to Mr. Bernanke's theory, the huge inflows of foreign investment are holding down interest rates in the U.S. allowing consumers to spend more on domestic and foreign goods and the federal government to run up large budget deficits.
Fed officials feel that the current account deficit will eventually decrease. The large retiree populations in Europe and Japan will begin to draw down their savings to spend on goods and services, possibly some of them from the United States. Foreign governments will begin to reap the benefits of the savings that they invested in the U.S.
I agree that the U.S. current account woes are not as bleak as some feel. Foreign investment has been a large source of the imbalance. However, the continual fall of the dollar is particularly troubling, especially related to the euro. Some actions must be taken in order to prevent the eventual crash of the dollar.
You may read more on this topicin the article entitled "The Deficit: The Sky May Not be Falling."
1 Comments:
At 7:12 PM, dlean said…
I also agree that the deficit is not as bad as they make it out to be. After all aren't most people in debt in some way or fashion. I do have some concern with so many foreign countries investing in our country and our industries. Before we know we will be owned by other countries and who is to say what will happen then.
Post a Comment
<< Home