The United States has once again entered into a period of large external imbalances. This time the current account deficit, at nearly 6 percent of GDP in 2004, is much larger than in the last episode, when the deficit peaked at about 3.5 percent of GDP in 1987. Moreover, the deficit is on track to become substantially larger over the next several years. This study examines whether the large and growing current account deficit is a problem, and if so, how the problem can be solved. A central policy conclusion of this study is that it is increasingly important that the United States reduce its external current account deficit. This deficit is no longer benign as it arguably was in the late 1990s when it was financing high investment instead of high consumption and large government dissaving.
- Cover
- Contents
- Preface
- Acknowledgments
- Overview
- Chapter 1 The International Debt Cycle and the United States as an External Debtor
- The Debt Cycle
- Measuring the Net International Investment Position
- The Debt Cycle in Practice
- The Global Balance Sheet Discrepancy
- Debt Cycle Status and Growth Performance
- Appendix 1A Estimating the Net International Investment Position
- Chapter 2 Valuation Effects, Asymmetric Returns, and Economic Net Foreign Assets
- US Valuation Effects
- US Asymmetric Capital Returns
- Capital Services and Economic Versus Accounting Net Foreign Assets
- Alternative Measures: Cash Flow Versus Debt Burden
- Appendix 2A
- Chapter 3 Projecting the US Current Account Deficit and Net Foreign Assets
- A Simple Projection Model
- Calibration and Data
- Identifying the Exchange Rate Lag
- Backcast Performance
- Baseline Projections
- Comparison with Other Projections
- Adjustment Scenarios
- Impact Parameters
- Chapter 4 US Fiscal Imbalance and the External Deficit
- Understanding the Linkages
- From Fiscal Surplus to Deficit
- The Decline in Personal Saving
- Fiscal Outlook for 2005-10
- Long-Term Fiscal Problem
- General Equilibrium Framework
- Toward Fiscal and External Adjustment
- Appendix 4A A Simple General Equilibrium Model Relating the Trade and Fiscal Balances
- Chapter 5 Sustainability of the US Current Account Deficit and the Risk of Crisis
- US Share in Global Portfolios
- Debt Ratios and Critical Thresholds
- Hard Landing, Long-Term Burden, and Protectionist Pressures
- The Evolving Crisis Debate
- Appendix 5A Key Features of Leading Recent Analyses
- Chapter 6 Impact of the US External Imbalance on the Rest of the World
- Impact on Global Demand
- Impact on Interest Rates
- Emerging-Market Capital Supply and Current Account Performance
- Developing-Country Reserves: Burden or Bonanza?
- East Asian Exchange Rate Rigidity
- Achieving Global Adjustment
- Appendix 6A Optimal Exchange Rate Realignment
- Appendix 6B Recent Alternative Profiles Proposed for Global Adjustment
- Chapter 7 Principal Findings and Policy Implications
- The International Debt Cycle
- Valuation Effects, Asymmetric Returns, and Economic Net Foreign Assets
- Forecasting the US Current Account Deficit and Net Foreign Assets
- The Role of Fiscal Adjustment
- Sustainability and Risks of the Current Account Deficit
- Global Impact of US External Imbalance
- Policy Implications
- References
- Index
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