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Is International Growth the Way Out of U.S. Current Account Deficits? A Note of Caution

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  • Anwar Shaikh
  • Gennaro Zezza
  • Claudio dos Santos

Abstract

The current account deficit of the United States has been growing steadily as a share of GDP for more than a decade. It is now at an all-time high, over 5 percent of GDP (see Figure 1). This steady deterioration has been greeted with an increasing amount of concern (U.S Trade Deficit Review Commission 2000; Brookings Papers 2001; Godley 2001; Mann 2002). At The Levy Economics Institute, we have long argued that this burgeoning deficit is unsustainable. A current account deficit implies a growing external debt, which in turn implies a continuing shift in net income received from abroad (net interest and dividend flows) in favor of foreigners.We have also noted that with the private sector headed toward balance, a growing current account deficit implies a corresponding growing "twin" deficit for the government sector (Papadimitriou, et al 2002; Godley 2003). This latter scenario has already come to pass: the latest figures show that the general government deficit rose to an annual rate of more than 4 percent of GDP in the first quarter of 2003 and will certainly rise even more in the near future, since the federal deficit alone is officially projected to reach 4 percent by the end of this fiscal year (CBO 2003).

Suggested Citation

  • Anwar Shaikh & Gennaro Zezza & Claudio dos Santos, "undated". "Is International Growth the Way Out of U.S. Current Account Deficits? A Note of Caution," Economics Policy Note Archive 03-6, Levy Economics Institute.
  • Handle: RePEc:lev:levypn:03-6
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    References listed on IDEAS

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    1. Whelan, Karl, 2002. "A Guide to U.S. Chain Aggregated NIPA Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(2), pages 217-233, June.
    2. Dimitri B. Papadimitriou & Anwar Shaikh & Claudio H. dos Santos & Gennaro Zezza, 2002. "Is Personal Debt Sustainable?," Economics Strategic Analysis Archive 02-11, Levy Economics Institute.
    3. Jeffrey A. Rosensweig, 1987. "Constructing and using exchange rate indexes," Economic Review, Federal Reserve Bank of Atlanta, issue Sum, pages 4-16.
    4. Menzie D. Chinn, 2005. "Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(3), pages 460-485, October.
    5. Michael P. Leahy, 1998. "New summary measures of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 811-818.
    6. Catherine L. Mann, 2002. "Perspectives on the U.S. Current Account Deficit and Sustainability," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 131-152, Summer.
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    Cited by:

    1. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2013. "Rescuing the Recovery: Prospects and Policies for the United States," Economics Strategic Analysis Archive sa_oct_13, Levy Economics Institute.
    2. Constantine, Collin, 2014. "Rethinking the Twin Deficits," MPRA Paper 58798, University Library of Munich, Germany.

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