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December 24, 2004
As Long As We Are Talking About The Current Account...
My colleague Owen Humpage recently published an Economic Commentary article titled "A Hitchhiker's Guide to the U.S. Current Account Problem." Here's the setup:
This Economic Commentary offers a hitchhiker’s guide to the U.S. current account problem for those who want to follow along, but are not inclined to take the wheel. I show how foreigners finance our propensity to import, stopping long enough to make the connection between our budget and current account deficits. I explain why growing current account deficits and expanding inflows of foreign savings are not indefinitely sustainable, and why big deficits imply big corrections. Throughout the trip, however, I emphasize that we simply have no basis for determining when, how fast, or how jarring any adjustment might be. Those who claim a definitive word on that topic may just be spinning their wheels.
I suppose that last comment applies to me as well.
December 24, 2004 in Trade Deficit | Permalink
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Listed below are links to blogs that reference As Long As We Are Talking About The Current Account...:
» More on the current account from William J. Polley
Here's a great article on the current account from the Cleveland Fed. Macroblog pulls out the thesis from the article itself: This Economic Commentary offers a hitchhiker’s guide to the U.S. current account problem for those who want to follow... [Read More]
Tracked on Jan 3, 2005 5:34:09 PM
Comments
Posted by:
Paul Brakke |
December 29, 2004 at 12:46 PM
Paul --
Bad policy is not the only reason for a growing current account deficit. If the U.S. economy grows faster than other economies, our demand for imports will naturally outpace the demand for our exports. I think that has actually been at least part of the story over the past several years.
The "one currency" question is an interesting one. Of course, there is an analog to the current account surplus across states. I guess the reason we don't bother to measure them is that all states operate with identical capital markets, identical monetary policies, identical federal fiscal policies, very mobile factor markets, and the like. That pretty much takes many of the policy questions off the table, and means that the adjustment processes will naturally kick into gear.
Posted by:
Dave |
January 03, 2005 at 07:37 AM
Of all the things in economics, national accounting confuses me the most. Here’s the question; if the world trades with only one currency are there still twin deficits and surpluses? And if they matter, why don't we measure inter-state deficits?
The only problems I can see in the discussion of current account issues are governments spending too much and central banks "mismanaging" monetary policy..
What am I missing?