Deficits

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The United States faces largely growing deficits since the year of 2001. The deficit on the current account of the balance of payment in the United States increased from
157.8 billion dollars in 2002 to 377.6 billion dollars in 2003 and it reached 680 Billion dollars in 2013 (Manuel). With the demand reduction in the exports of the United
States against the increase in demand of the imports the deficits will continue.

The concern about the negative impact of the deficit in the United States economy and financial condition is that the increase in foreign indebtedness will create financial difficulties over time. Some economists go with the thought that the massive depreciation of the dollar will lead to correct the situation of the deficit. When the foreign capital investors refuse to finance the United States deficits and switch to invest their money in other places that will lead to a financial crisis in the
United States.

The deficit of the current account gets a considerable attention, because it affects directly in the capital market, particularly the dollar exchange rate. The dollar is influenced greatly by the change of the current account deficit, because the trade deficit means that the United States imports of goods and services exceeds its exports. Thus, the import surplus increases demand of foreign currencies the demand of the dollar drops and cause dollar devaluation.

Although the United Stated was facing a trade deficit and current account deficit, it enjoyed a prosperous economy at the same time. So maybe external deficits better are sustainable as long as they make no adverse effect, but on the contrary, it coincides with a period of prosperity.

The disparity of the economic growth between the United ...

... middle of paper ...

...vestors find the United States an attractive investment destination and that brings higher rate of income comparing to any other place because of its openness, scope and liquidity of capital. Also, the role of dollar as prime currency of the investment and transaction in the world makes the United States a great place for foreigner to invest their capitals (Karczmar, 2004).

Works Cited

1- Manuel, D. (n.d.). A history of surpluses and deficits in the united states. Retrieved from http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php
2- Karczmar, M. (2004). The u.s. balance of payments: wide- spread misconceptions and exaggerated worries. Deutsche Bank Research, Retrieved from https://csuglobal.blackboard.com/bbcswebdav/pid-384160-dt-content-rid-690518_2/courses/KEY_ECN500/courseFiles_spring2014a/ECN500 - Deutsche Bank Research.pdf

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