Essay on The United States Current Account Deficit

Essay on The United States Current Account Deficit

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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...


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...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

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