Current Account Deficits Essay

Current Account Deficits Essay

Length: 1081 words (3.1 double-spaced pages)

Rating: Strong Essays

Open Document

Essay Preview

Carbaugh (2011) asks, "Can the United States Continue to Run Current Account Deficits Indefinitely?" (p. 361). Ultimately in the long term the answer is no, but the question could be rephrased to ask: (1) Does the United States' unique position in the world economy allow the country to safely run persistent external deficits? and (2) can persistent U.S. deficits in the current and payments accounts be adjusted without bringing about economic recession or crisis? Japan, China, and Middle Eastern oil countries have enabled this deficit to continue by heavily investing in U.S. Treasury securities (Carbaugh, 2011). Because foreigners desire to purchase American assets, Carbaugh (2011) concludes that “there is no economic reason why [the U.S. current account deficit] cannot continue indefinitely” (pp. 361-362). Deutsche Bank Research (Karczmar, 2004), in examining the “widespread worries and fears as to how long this condition may last and how could it be rectified,” also concludes: “Closer examination of this issue shows, however, that the worries are far from justified and the fears greatly exaggerated” (p. 8). In this context, it is appropriate to evaluate the two questions raised above regarding the United States external current account deficits.
(1) Does the United States' unique position in the world economy allow
the country to safely run persistent external deficits?
The world relies on the U.S. dollar—more than 60 percent of global monetary reserves are held in U.S. dollars—61.4 percent as of the third quarter of 2013 (International Monetary Fund, 2013). Consequently, Deutsche Bank Research (Karczmar, 2004) concludes that the U.S. dollar’s function as the main reserve currency makes the current-account deficit inevita...

... middle of paper ...

...). Retrieved from
Karczmar, M. (2004). The U.S. balance of payments: widespread misconceptions and exaggerated worries. Frankfurt am Main, Germany: Deutsche Bank Research. Retrieved from
Lizardo, R. A., & Mollick, A. (2009). The sustainability of the U.S. current account deficit: Revisiting Mann's rule. Global Economy Journal, 9(4), 1-19. doi:10.2202/1524-5861.1532
Obsfeld, M., & Rogoff, K. S. (2005). Global current account imbalances and exchange rate adjustments. Brookings Papers On Economic Activity, 2005(1), 67-146.
Tobin, J. (1990). Eight myths about the dollar. In S. Gerlach, & P. A. Petri, In The Economics of the Dollar Cycle. Cambridge, MA: MIT Press.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on The United States Current Account Deficit

- 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)....   [tags: Critical Thinking Essays]

Strong Essays
1264 words (3.6 pages)

Current Account Deficit Challenges India's Economy Essay

- The current account deficit is one of major challenges that Indian economy is facing. It has pulled down the economy growth to 4.8% from average growth of 5.5%. The current account records the trade of goods and services of an economy with other countries of the world. It consists of net exchange i.e. exports minus imports of goods, net exchange of services and net transfers to and from the country. Balance of the account before calculating the transfers is also called as balance of trade. X = Exports of goods and services M = Imports of goods and services I =Invisibles (net) NMG=Non-monetary movement of gold CAB = (X – M) + I+ NMT So now we can d...   [tags: import, export, balance]

Strong Essays
1864 words (5.3 pages)

The U.S. Current Account Deficit Essay

- Introduction: Since in the 1980’s, one of the most persistent challenges to The United States’ economy and her policy makers has been the deficit of the U.S. current account. A current account is made up of four separate categories, the combined balance of which results in a surplus or deficit. The four categories are: The Merchandise Trade Account, Services, Factor Income, and Unilateral Transfers. Each account either has a surplus or a deficit, depending on whether money is flowing into or out of a particular country....   [tags: overview, economy, policy makers, USA]

Strong Essays
1830 words (5.2 pages)

Essay on The Current Problem Of Child Poverty

- An Analysis of the Current Problem of Child Poverty in Canada Part A: An Analysis of Child Poverty in Canada I. Summary Analysis This social welfare analysis will define the current problem of child poverty as an increasing epidemic in the Canadian economy. A focus on the economic data provided by the Canadian government will define the increasing levels of poverty for children in comparison to other nations from around the world. This data defines the effects of economic disparity being focused on the younger members of the Canadian population, which reflects the continuing lack of economic support that is being provided for them....   [tags: Unemployment, Poverty, Canada, Economics]

Strong Essays
1340 words (3.8 pages)

Essay about Australia 's Current Economy : Australia

- Australia’s Current Economy Australia’s economy is in an envious position, on the international stage, coming on 20 years of continuous economic growth, due to the mining boom, and prudent economic management of both monetary, fiscal and regulatory policy. But in saying that by Australian standards we are in a sluggish position with slow growth (2.5%), High unemployment (6.1%) and low confidence from consumers and businesses. This is further weighed by a large current account deficit fuelled by foreign debt....   [tags: Inflation, Economics, Public finance, Tax]

Strong Essays
1178 words (3.4 pages)

Is The Current Account Deficit Something? Essay

- 1. Is a current account deficit something to be avoided. Explain. A current account measures trade, international income, direct transfers of capital, and investment income. A current account deficit occurs when a country imports more goods, services, and capital than it exports. It creates a reliance on foreign parties for capital. A current account deficit isn’t necessarily something to be avoided – it can be a sign of economic growth, or a sign that the country is a credit risk. There are multiple components of a current account deficit that should be taken into account when assessing each case....   [tags: Economics, International trade, Investment]

Strong Essays
1541 words (4.4 pages)

Essay about The Current Account Deficit

- Macro Economics Project Executive Summary Balance of Payment BoP, also known as balance of international payments, deals with an economy’s transactions with the rest of the world, for a specified time period. It involves goods, services and income, financial claims and liabilities and transfers such as gifts and foreign aid. Balance of Payment involves two kinds of accounts – Trade balance, or for India’s case, Trade Deficit, is a major component of Current Account Deficit. It the output in the economy can be characterised as Y, below equations can be derived as follows: Y = C + I + G + NX NX=Y– (C+ I + G ) NX = (Y– C– G ) – I = S – I Where, C: Consumption; I: Inve...   [tags: macro economics project]

Strong Essays
2807 words (8 pages)

Essay on The Current Account Balance Of The United States

- In the past decade, the United States has invested enormous amounts of money internationally. The amount of money the United States has invested internationally would be in the trillion dollar range. Based on the charts from OECD, the estimated total international invest in the past ten years is roughly $1.657 trillion. The United States makes its largest investments in the Netherlands, Canada, and the Belgium-Luxembourg Economic Union (BLEU). The United States makes is smallest investments in Estonia, Iceland, and Slovenia....   [tags: Investment, Finance, Balance of payments]

Strong Essays
702 words (2 pages)

The Factors that Would Lead to an Increase in the Size of the Deficit on the Current Account of the Balance of Payments

- The Factors that Would Lead to an Increase in the Size of the Deficit on the Current Account of the Balance of Payments The current Account is a key indictor for the British economy. It is the sum of four separate trade balances between the UK and the Rest of the World. The Current Account records the exports and imports of both visible invisible items. Therefore a deficit on the Current Account occurs when we was a country are either importing too many goods and services from abroad, or are not exporting enough, usually it is a mixture of both....   [tags: Papers]

Free Essays
842 words (2.4 pages)

Essay on The Implications of Economic Deficits on Law Enforcement

- News pertaining to state deficits has unfortunately become society’s reality. The societal implications are evident due to high rates of unemployment as well as the immense struggle of businesses and organizations. Criminal justice agencies are no different, and are equally subjected to the affects of economic deficits. This issue is affecting every state on a different level. For the purpose of this discussion, the state of Connecticut will be used as an example. This discussion will address the implications of economic deficits and how the deficit affects agencies involved with case studies....   [tags: Economics]

Strong Essays
1320 words (3.8 pages)