How I Learned to Stop Worrying and Love the Current Account Deficit

The U.S. current account deficit now stands at about $666 billion, or 5-3/4 percent of GDP. Americans – people, businesses, and governments – now borrow $666 billion per year, on net, from foreign lenders. The deficit has grown rapidly over the past decade: a decade ago, the United States borrowed only about one-fourth of this amount: the 1994 current account deficit was $118.2 billion, or 1-1/2 percent of GDP. Should the current account deficit worry Americans? Should we be concerned about the changes in underlying economic factors that have caused that deficit? Should we worry about its implications? Does the current account deficit cause or reflect serious underlying economic problems that threaten our living standards? Will the United States become such a debtor nation that American living standards will fall as we work mainly to pay foreign debts? Can some change in government policies reduce the current account deficit or attack its causes? Would America benefit from some such policy change? Without any policy change, what will happen in the future to the current account and the growing U.S. debt to foreigners, and what consequences will it have for the American economy, and our living standards