Is the USA's Current Account Sustainable?
The extraordinary height of the U.S. current account deficits in the 90s gave rise to concern, a variety of papers and political recommendationsrevealing the very contrary opinions of economists on the subject.From this alarming evolution, the question of sustainability of such a largeindebtedness arises.Are the U.S. already bankrupt?If not, what is the ultimate level of its foreign debt?As a starting point, the variety of meanings of the term `sustainability'are consolidated to a consistent definition.Introducing terminology and reviewing the basic principles of balanceof payments accounting, the evolution of the U.S. balance of paymentsand international debt is presented in numbers. The models of the central parts of the textemphasise the importance of understanding the current account as anintertemporal phenomenon.The `real' perspective is presented in the baseline representative agentand overlapping generations macro-models whereas the monetary perspectiveis exposed in a portfolio balance approach.These models are confronted with IMF statistics and checked forplausibility of their implications.As the very crucial point for the U.S. case, thesignificance of the dollar standard of international financial marketsis discussedthereafter.Finally, a detailed breakdown of the income account reveals surprisinginsights on the quality of U.S. agents' investment decisions.The overall result is striking: Although the debt-to-GDP ratio isapproaching its 5 per cent red-mark, there are no effects observablein fundamental variables indicating bankruptcy or un-sustainability ofthe U.S. international debt.On the contrary - for monetary reasons, the U.S. will be able to runa significant higher level of external debt and models in conjunctionwith data suggest that the U.S. is approaching a long-rundebt-to-GDP steady state. In these results, the author acknowledges theoutsider position of economists.
Year of publication: |
2003
|
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Authors: | Bubla, Florian |
Publisher: |
Universität Konstanz / Fachbereich Wirtschaftswissenschaften. Fachbereich Wirtschaftswissenschaften |
Subject: | Zahlungsbilanz | Leistungsbilanzdefizit | US-Dollar | Auslandsvermögen | Handelsbilanz <Außenhandel> | Sustainability | Current Account | Balance of Payments | International Investment Position |
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