Current Account Deficit Does Not Always Increase External Liabilities

The arrival of the current decade was greeted by a further deterioration of the continued U.S. current account deficit. In 2004, the deficit reached 5.7 per cent of the nominal gross domestic product (GDP), a record level. While the continued current account deficit should accumulate external debts, the actual situation is not that simple. The movements in the “net external asset position ” (relative to the nominal GDP) for the U.S., a figure computed by subtracting external debts from external assets, are on a long-term downward trend. In fact, the U.S. slipped into the ranks of debtor nations toward the end of the 1980s (Chart 1; the negative figures show net external debt position). The decline accelerated sharply in the mid-1990s: a decline by 20 percentage points during the eight-year period of 1994 to 2002 reaching minus 23.4 per cent