The largest and richest world economy belongs to the United States (“North America,” 2011). Interestingly, this same monstrous economy also holds the title for the largest current account deficit. The U.S. current account deficit is funded from net capital inflows from abroad and has continued to grow throughout the last two decades (Holman, 2001). Economists in the early part of this century theorized that this huge U.S. external deficit was sustainable because it would gradually correct itself and in a few short years, the deficit would narrow, but this was not the case (Holman, 2001). The United States, continually fueled by foreign investments, became a net debtor nation. The unique position that the United States holds in the world economy allows the country to run persistent external deficits, but this is not a safe practice. In order to be safe from sudden foreign shifts in confidence, the United States must strive to minimize the deficit by formulating a strategic plan to prioritize expenses and avoid perpetual damage.
The United States’ current account deficit is a result of the nation importing more than it is exporting or consuming more than it is producing (Ott, n.d.). The current account is a subaccount of the balance of payments, which is a method of tracking economic interactions with other countries (Carbaugh, 2011). The other subaccount of the balance of payments is the capital and financial account. A deficit in the current account means that there is a surplus in the capital and financial account, and vice versa. A country is considered a net debtor when the money in the current account is less than that of the capital and financial account. Furthermore, this net debtor label means that foreig...
... middle of paper ...
...e 6, 2011, from http://www.dbresearch.de/PROD/DBR_INTERNET_DE- PROD/PROD0000000000180032.pdf
North America: United States. (2011, June 6). CIA - The World Factbook. Retrieved June 9, 2011, from https://www.cia.gov/library/publications/the-world-factbook/geos/us.html
Ott, M. (n.d.). International Capital Flows. Library of Economics and Liberty. Retrieved June 9, 2011, from http://www.econlib.org/library/Enc/InternationalCapitalFlows.html
Walker, D. (2008). The United States' Four Deficits. Brown Journal of World Affairs, 14(2), 165-173.
Wheelan, C. (2010). Naked Economics: Undressing the Dismal Science. New York, NY: W.W. Norton & Company, Inc.
Wray, L. R. (20009). Do Deficits Matter: Foreign Lending to the Treasury. Roosevelt Institute. Retrieved June 9, 2011, from http://www.rooseveltinstitute.org/new-roosevelt/do-deficits-matter-foreign-lending-treasury
Many argue that Reagan “enacted irresponsible tax giveaways for the rich…[starving] the federal government of revenue [which] led to unprecedented deficits.” There is no doubt that “today’s budget deficits [can] impoverish our descendants.”1
Mexico was running an increasing current account deficit from US$7.5 billion in 1990 to US$23.4 billion in 1993. This indicates an excess of private investing over private savings. However, the country was able to maintain an improving fiscal account from US$3.6 billion deficit in 1990 to US$0.7 billion surplus in 1993. The deficit in current account was financed through capital funds from abroad resulting the capital account to increase from US$8.4 billion in 1990 to US$33.8 billion in 1993.
A large increase in government debt occurred during Ronald Reagan’s presidency in the 1980’s. Ronald Reagan was dedicated to decreasing taxes a...
The US has been in and out of debt countless times throughout history, going as far back as the Civil War. However, debt did not become a truly relevant problem until much later, in the 1980s (Budget Deficits). Up to that point, large budget deficits were generally only allowed during wartime, but this pattern ended after the Great Depression. Roosevelt’s New Deal meant that the government spent much more than it previously did, even after the economy improved (Budget De...
Gaynor Ellis, Elisabeth, and Anthony Esler. ""New Economic Thinking"" World History: The Modern Era. Prentice Hall. 186. Print.
U.S Federal Deficit and Debts:Understanding the history and context. (2011, November 1). Utah Foundation. Retrieved January 25, 2014, from http://www.utahfoundation.org/img/pdfs/rr7
Alfaro, Laura, and Rafael Di Tella. "The US Current Account Deficit." Harvard Business School, 28 Aug. 2013. Web.
Heilbroner, Robert. "The Economic Problem." The Making of the Economic Society. Englewood Cliffs: Prentice Hall, 1993. pp. 1-15
The U.S. trade deficit has risen more or less steadily since 1992. In the second quarter of 2004, the trade deficit relative to GDP surpassed the 5 percent mark for the first time. Many economists already considered trade deficits above 4 percent of GDP dangerously high. The fear is that continued growth in this external imbalance of the U.S. economy will ultimately spook overseas investors. http://www.americanprogress.org/issues/2004/09/b193700.html
In November of 2004, the United States ran a fifty-four billion dollar trade deficit, translating to over 600 billion for the entire year. This deficit is a result of the disparity between the amount of goods that the US imports and the amount it exports. To equalize this deficit in its current account, the American government sells assets from its capital account, often to foreign investors. This phenomenon is seen as a serious threat to the success and continued growth of the nation’s economy, tied in with popular concerns that the United States is losing its competitive and dominant edge in global economics. The traditional economic theory employed to solve this problem calls for a return to mercantile protectionism, through use of tariffs and subsidies to drive up the price of imports and lower the price of exports. Running contrary to this is a second option: increasing domestic savings and lowering government spending. These theories both aim to decrease American dependence upon foreign imports and investment, and ultimately equalize the enormous trade deficit that currently exists.
Tragakes, E. (2012). Economics for the IB diploma (2nd ed.). Cambridge, UK: Cambridge University Press.
O'Sullivan, A., & Sheffrin, S. (2005). Economics. Upper Saddle River, New Jersey: Pearson Prentice Hall.
The crucial importance and relevance of economics related disciplines to the modern world have led me to want to pursue the study of these social sciences at a higher level. My study of Economics has shown me the fundamental part it plays in our lives and I would like to approach it with an open mind - interested but not yet fully informed.
In 1996, the US current account and emerging market plus developing country current account were each about zero. In 2008, US current account was in deficit by $ 600 bn, the emerging market/developing country current account in surplus by $ 900 bn. (sect. 1.1)
Sullivan, A., & Steven M., (2003). Economics: Principles in action. Upper Saddle River, New Jersey : Pearson Prentice Hal