It may be time to stop worrying about the US current-account deficit – and not only because of adjustment at home and in China. It is possible that, properly measured, America's true deficits were smaller than has been reported, and even that, in some years, they were not there at all.
CAMBRIDGE – When the United States’ current account fell into deficit in 1982, the US Council of Economic Advisers accurately predicted record deficits for years to come, owing to budget deficits, a low national saving rate, and an overvalued dollar. If the US did not adjust, knowledgeable forecasters intoned, it would go from being the world’s largest creditor to its largest debtor. Many of us worried that the imbalances were unsustainable, and might end in a “hard landing” for the dollar if and when global investors tired of holding it.
CAMBRIDGE – When the United States’ current account fell into deficit in 1982, the US Council of Economic Advisers accurately predicted record deficits for years to come, owing to budget deficits, a low national saving rate, and an overvalued dollar. If the US did not adjust, knowledgeable forecasters intoned, it would go from being the world’s largest creditor to its largest debtor. Many of us worried that the imbalances were unsustainable, and might end in a “hard landing” for the dollar if and when global investors tired of holding it.