EconoFact: “Are Global Imbalances a Source of Concern?”

That’s the title of a new EconoFact piece. Here is the key depiction of some key current account balances, past and (possibly) future.

From the article:

The distribution of current account balances is important in the current political context. Persistent current account surpluses from countries such as Germany, China, and Korea in the face of a persistent and increasing current account deficit in the United States contribute to increasing political tensions over trade policies. To the extent that deficit countries could raise production and employment by shifting spending away from exports from surplus countries, policymakers might be tempted to use trade policies to narrow the gap. But, imposing tariffs and other trade restrictions, without addressing other factors such as the balance of government spending, is not likely to have a significant effect on the U.S.’s current account.

On the other hand, the Administration and Congress’s plans to blow up the deficit by something like $2.2 trillion over ten years is likely to exacerbate US current account deficits, according to my estimates.f

Update, 10/5: See also this article by Thomas Lubik at the Richmond Fed.

9 thoughts on “EconoFact: “Are Global Imbalances a Source of Concern?”

  1. Benlu

    The US spent thrillions on wars and some 800 military bases outside of US around the world. Who should be blamed for the resulting deficits from such activities?

  2. Steven Kopits

    Interesting that the US is essentially the debit side of the balance sheet. Worth a thought, Menzie, on US role as hegemon and its impact on the ca deficit.

  3. PeakTrader

    We need to reverse spending on the unemployed and underemployed, which keeps them poor, and turn them into taxpayers and bigger consumers. We need less entitlement spending and more tax revenue. Then, we can afford to rebuild the military, which will also boost technology, and reduce the over $500 billion projected annual budget deficits. The U.S. consuming more than producing at full employment in the global economy and in the long run will boost world GDP.

    1. PeakTrader

      The Administration is on the right track, but a lot more work needs to be done. We need to reduce the tax burden and roll back regulations, particularly on small businesses, to create jobs and expand the economy. Then, firms can absorb a higher minimum wage, which can be raised towards $15 an hour. A new workfare program is needed. The free market needs to determine health care, except for catastrophic insurance, to reduce costs substantially. Everyone needs to contribute. The upper and middle classes already pay a disproportionately large share in work and taxes. We need the lower class to contribute more.

      1. PeakTrader

        We need to be more efficient with entitlements, e.g. killing two birds with one stone. For example, instead of low income housing and food stamps, low or no income men should put up tents and produce three meals a day (what’s good for the army in the field is good enough for low or no income men), and for women, build barracks in day care centers with three meals a day. The men could work on something like repairing roads, while the women could babysit, teach classes, and cook. These workfare opportunities can be provided, until they find a decent job, e.g. at $15 an hour minimum wage. In the meantime, infrastructure is rebuilt and poor single moms will have a village to raise their children, at least until they get good jobs πŸ™‚

        1. PeakTrader

          And, most people collecting disability can do some type of work for their check, like learning tax accounting and doing tax returns for people, who actually work πŸ™‚

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