Editors’ Summary of the Brookings Papers on Economic Activity – 2005 No 1

George L. Perry and

George L. Perry Senior Fellow Emeritus - Economic Studies

William C. Brainard

WCB

William C. Brainard

The brookings panel on Economic Activity held its seventy-ninth conference
in Washington, D.C., on March 31 and April 1, 2005. This issue of
Brookings Papers on Economic Activity includes the papers and discussions
presented at the conference. The first four articles address the position of
the United States in the global economy, an increasingly controversial subject
in the research, financial, and policy communities. Since the early
1990s, U.S. current account deficits have grown almost without interruption,
reaching $666 billion, or about 6 percent of GDP, in 2004. The U.S.
international investment position is now one of net indebtedness approaching
30 percent of GDP, and in recent years a substantial portion of the
buildup in net debt has come in the form of additions to dollar reserves by
foreign central banks. Some observers see the present situation as unsustainable
and warn of an abrupt depreciation of the dollar, which could
destabilize financial markets and disrupt the global economy. Others are
more sanguine, arguing that the present situation reflects the relative
strength of the U.S. economy, consumer and business preferences, and
rational financial decisions, all of which could evolve so as to make any
needed adjustments gradual.