Balancing the Accounts of the Nation Research Paper

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Account Deficiency in U.S.

There are consequences when the amount of money a country spends abroad is very different from what the country receives from the outside world. The current account balance is an abstruse economic concept. In countries that are, spending more outside more than they are taking in then the current account is the point at which the international economies come to terms with the political reality. When countries that have large deficits, trade unions, businesses and parliamentarians are quick to point fingers at the trading partners and make amendments due to their unfair practices. Tension between China and United States is primarily as a result of trade imbalance between these two which has thrown a spotlight on broader consequences of the international financial systems when some of the countries run large and the persistent current account deficits and others accumulate large surpluses.

The current account can be expresses as a difference between the value of goods and services against the value of imports of goods and services. A deficit then means that a country is importing more than it is exporting. The current account is also inclusive of net income like dividends and interest and transfers from abroad like foreign aid which is a portion of the total. A current account Deficit is therefore a reflection of low level of national savings which is relative to the investment or a high investment rate or both. Advanced economies such as the United States usually run current account deficits whereas developing countries run surpluses. The cause of the current U.S. trade deficit are initially there were better investment opportunities within the U.S. more recently there are high U.

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S. fiscal deficits, fall in U.S. personal savings rate, low investment in Asia and very slow growth in Europe. When the U.S. fiscal deficit continues to go up the other countries will worry about the ability of the U.S. To service and pay back the debts. At some point, the exports will be more than the imports, which is what the U.S. is at currently. The U.S. citizens are also spending their money as opposed to saving it. This means that foreign businesses are interested in obtaining the piece of consumers spending and then adding some of the U.S. consumers money to their revenue. The U.S. now looks like a better place for foreign investors to focus on (Bergsten, 2007).

The current account deficit is a problem in the U.S. since the deficit is destroying the future of the U.S. living standards in that the longer this debt grows the more significant the loss of future income claims will be and there will be a more intense pressure on the living standards in America. This loss of the claim to the future income can be termed as debt service cost that arises from borrowing which is implied by the running of these current account deficits over a period of time. If the current account deficit in the U.S. does not improve then the external debt of the U.S. will go up from 2.4% of the gross domestic product in the U.S. By 2003 to 64%….....

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