Approaches to managing external equilibria: where we are, where we might be headed, and how we might get there

This paper examines the issue of the U.S. external deficit in a global context. First, the paper considers certain aspects of the current economic situation that have contributed to the U.S. deficit and the progress that has been made to date in laying the basis for its narrowing. Second, the paper raises some questions about the international economic implications of a substantial reduction in the U.S. fiscal deficit, about the need for additional impetus to bring about further adjustment in the U.S. current account deficit, and about the preparedness of other industrial countries to absorb the elimination of the U.S. external deficit. Finally, the paper sketches a few scenarios for the U. S. external adjustment process and comments briefly on them as alternatives.