ResearchBPEA | 2005 No. 1
Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?
2005, No. 1
MANY ANALYSTS IN academia, the private sector, and applied research
institutions express increasing concern about the growing U.S. current
account deficit. There is a general sense that current global imbalances
are unsustainable and that adjustment must come sooner rather than later.
The unprecedented magnitude of the U.S. current account deficit and
the United States’ growing net foreign indebtedness have fueled these
worries, with many analysts arguing that, unless something is done, the
world will move toward a major financial crisis.1 Some have gone as far
as to suggest an imminent collapse of the dollar and a global financial
meltdown.2 Underlying this view is the fact that, if the deficit continues
at its current level, U.S. net international liabilities will eventually reach
100 percent of GDP, a figure widely considered to be excessively large.