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 http://www.imf.org/External/np/sta/cofer/eng/index.htm
Karczmar, M. (2004). The U.S. balance of payments: widespread misconceptions and exaggerated worries. Frankfurt am Main, Germany: Deutsche Bank Research. Retrieved from http://dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000180032/The+U_S_+balance+of+payments%3A+widespread+misconceptions+and+exaggerated+worries.pdf
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.
With differing economies and the growth of specie and paper money, Brands argues that the basis of knowledge about the money system of this time lays a foundation for how Carnegie, Rockefeller, and others were able to manipulate the market and gain wealth. Leading into price manipulation by those in corporate
This deficit has to do with having responsible leader who are willing to increase awareness and make beneficial changes in the nation. In my opinion, the federal debt is a serious threat to the US that must be politically address whenever possible. I believe that the candidates of the 2016 presidential election should make this issue one of the top priorities to discuss and to dictate a considerable amount of work to fix it. That is because the worse the federal debt is, the worse the future would be to the nation. Also, voters must be well educated about this issue in order to shape their decision in voting for the candidate that seems most powerful and confident about this problem. Solving this problem may be difficult and would take time and so much effort. Therefore, the changes and solution must be on both a national and individual levels as
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...
The national debt is usually a frightening topic citizens of any country, however, in the United States, twenty trillion dollars of national debt is one of the major fears of the economy. Along with this fear comes every politician claiming to be the person to lower this astronomical debt to ease concerns in the modern American economy. In Hamilton’s Blessing, John Steele Gordon tries to alleviate these concerns by showing a plethora of benefits and good the debt has been able to do throughout the history of the United States. The central premise of the book and the main guideline for John Steele Gordon’s thinking is that the debt was used to save the Union in the 1860’s, the American economy in the 1930’s, and the wellbeing of mankind during
Friedman, Milton and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867-1960. Princeton, 1963
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
All but four countries in the world has external debt (“Country Comparison: Debt External”). Having a debt is almost as common as having a mortgage. Since its establishment, The United States has always been in debt (“Historical Debt Outstanding – Annual”). The US national debt has had five sharp increases previously in its history. The reasons include civil car and the two World W...
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
The greatest question many have sought to answer is the creation vs. evolution debate. How did we get here? Were we created or did we evolve randomly? Are we the product of purposeful intelligence or are we the result of countless mistakes? Does it even matter? The story of money is similar to the story of humanity. Was money created or did it evolve. If it was created we can assume it will die. If money evolved then we can assume the future is unknown. In his book, The Ascent of Money a financial history of the world, Neil Ferguson historic analysis of money answers many of these questions. Ferguson believes money essentially mirrors mankind, magnifying back to us our progress, failures, values and weaknesses.” (The Ascent of Money, 358) The history of money shares many similarities to the history of man; Ferguson parallels between finance and Darwinism, illustrating the natural mechanism of our financial ecosystem that evolves, creates, competes, and dies.
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
Binhammer, H. H. & Peter S. Sephton. Money, Banking and the Financial System. Nelson, 2001.
Walker, Bruce. "Euro Likely to Keep Losing Value." The New American. The New American Magazine, 7 July 2010. Web. 23 May 2011. .
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.
The leading model, Monetary Model links exchange rate movements to the balance of payment, which is used for medium to long term analysis. The following assumptions cons...
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)