Indeed, every year for more than three decades, the US Bureau of Economic Analysis (BEA) has reported a current account deficit. And yet now we must ask whether the US current account deficit is still a problem.

The counterargument hinges on the difference between the current account deficit and the trade deficit. The current account deficit is equal to the trade deficit plus the cost of servicing the net international asset position the net rent, interest, and dividends owed to foreigners who have invested their capital in the US.

Large current account imbalances continue to characterize the global economy, and a lower dollar would contribute to reducing the United States deficit.

Indeed, America s trade deficit in manufactures is roughly equal to its current account deficit (the amount by which domestic investment exceeds domestic saving). So those concerned with job losses in US manufacturing should join the chorus lobbying for a much smaller fiscal deficit.

In the short run, the US current account deficit will remain, regardless of which country runs bilateral surpluses. Thus, China s continued reinvestment of its current account surplus in US government securities is of utmost important for US growth and financial stability.

Perhaps the most notable consequence of Spain s recent reform efforts is its current account surplus the country s first in more than two decades. At the peak of the crisis, Spain s current account deficit amounted to an unprecedented 10 of GDP.

After all, America s still large current account deficit guarantees that the dollar will continue to fall. Even so, the macroeconomic logic that large current account deficits signal that currencies are overvalued continues to escape the world s international financial investors and speculators.

But if the US fails to narrow its savings gap, its current account deficit will not disappear, regardless of where the dollar goes. Whether America can achieve decent growth while keeping its current account deficit in check depends on whether it can reinvigorate its ability to innovate and create, thereby restoring competitiveness and creating demand at the same time.

Differences among the eurozone countries in growth rates of productivity and wages will continue to cause disparities in international competitiveness, resulting in trade and current account imbalances. Germany now has a current account surplus of about 215 billion a year, while the rest of the eurozone is running a current account deficit of about 140 billion.

In response, current account balances the Achilles heel of the so called East Asian growth miracle went from deficit to surplus. For the ASEAN 5, current account deficits averaging 4 of GDP in 1996 97 swung dramatically into average surpluses of 6.8 of GDP in 1998 99.

For the ASEAN 5, current account deficits averaging 4 of GDP in 1996 97 swung dramatically into average surpluses of 6.8 of GDP in 1998 99. A similar transformation occurred in South Korea, where a 2.8 current account deficit in 1996 1997 became an 8.6 surplus in 1998 1999.

Governments can do this consistently with a medium term deficit reduction plan by making a crucial distinction between their budgets current and capital accounts. The current account covers spending on services and perishable goods that produce no assets.

Ireland is the only country that has lowered its prices and wages, and its current account deficit is about to swing into surplus. By contrast, Spain s external deficit is still above 4 of GDP, while Portugal and Greece recently recorded astronomical figures of around 10 .

Growth momentum has fizzled and, with inflation persistently high, Indian producers are struggling to compete in world markets. The current account deficit is increasing relentlessly, owing to a widening trade deficit (now at 13 of GDP), raising the danger of a balance of payments crisis.

The really important target for any country starting an adjustment program with a double digit current account deficit must be export growth. Missing this target is what has set Greece apart.

For example, US multinational corporations sometimes over invoice import bills or under report export earnings to reduce their tax obligations. Again, this would work to overstate the recorded current account deficit.

This argument is correct in the sense that it is the current account surplus or deficit of a monetary union as a whole that can be expected to have exchange rate implications. And, unlike China, Germany no longer has a national exchange rate that can adjust in response to its current account surplus.

In short, substantial RMB appreciation would reduce the bilateral US China trade deficit and China s overall trade surplus significantly, but it would do little to reduce the overall US trade deficit. In the absence of a generalized appreciation of all Asian currencies and unchanged American policies, possibly only a deep recession could reduce the overall US current account deficit.

China breaks Crowther s mold. Given that it has been running an investment income deficit, a trade surplus, and current account surplus, it seems that it should be classified as a debtor repayer.

Remarks by Federal Reserve Governor Ben S. Bernanke at the Sandridge Lecture entitled The Global Saving Glut and the U.S. Current Account Deficit , Virginia Association of Economics, Richmond, Virginia, 10 March 2005.

Since 2007, the US current account deficit has narrowed, but not because of a higher savings rate. Rather, the external deficit has been squeezed by a collapse in investment activity, while America s overall savings rate has fallen below 13 of GDP, owing to worsening government finances.

Yet, strangely, it is the Fed, not the ECB, that has set an unemployment target. The US unemployment rate has declined to around 7.7 and the current account deficit is close to 500 billion, while eurozone unemployment is at a record high, near 12 , and the current account shows a surplus approaching 100 billion.

BEIJING In theory, the difference between capital inflows and outflows in developing countries should be positive they should be net capital importers, with the magnitude of the balance equivalent to the current account deficit. Since the 1997 1998 Asian financial crisis, however, many East Asian countries have been running current account surpluses and hence have become net capital exporters.

Yet the response in terms of exports has been disappointing. Though the country's whopping current account deficit is gone, this reflects a collapse of imports a result of austerity rather than an export boom.

Indeed, France s manufacturing industry has shrunk to barely 9 of GDP, less than Britain s manufacturing share (10 ) and less than half of Germany s (20 ). Its current account is sliding into an ever deeper deficit hole.

Is it not the case that the problem in the US has been too little savings, rather than too much? Doesn t the country s persistent current account deficit reflect excessive consumption, rather than weak effective demand?

As Italy s monthly current account deficit approximates only 3 4 billion, the Target credit must have compensated primarily for capital flight. Italian investors sold their assets to the banking system, which paid with newly printed money.

Indeed, the world itself cannot afford the disappearance of the US current account deficit at least not quickly. Take away US imports and the timid growth Europe has seen in the past year would immediately disappear.

The effect is greater when modest deficit and debt levels are exceeded and current account deficits are large. The increased interest rates are likely to retard private investment, which lowers future growth in employment and wages.

The financial press and many influential economists argue that a major de preciation of the dollar is needed to correct America s external deficit. But the US current account deficit about 6 of GDP in 2004 and 2005 mainly reflects a new round of deficit spending by the US federal government and surprisingly low personal savings by American households (perhaps because of the bubble in US residential real estate).

If a considerable fraction of the world economy wants to run a current account surplus (by 2006, this included much of emerging Asia, most oil exporters, and Japan), an equal share of the world economy must run a deficit. In the period after 1998, the United States provided almost the entire required deficit.

Meanwhile, the jewel of American capitalism, the financial sector, caused the crisis and is underpinning the US current account deficit. Oil exporters aside, countries running current account surpluses, such as China, Germany, and Japan, have stronger manufacturing sectors relative to their financial sectors, while the relationship is reversed for countries running external deficits, such as the US and the United Kingdom.

India s growth during the past decade had much to do with loose macroeconomic policies and a deteriorating current account which recorded a deficit of more than 5 of GDP in 2012, having been in surplus in the early 2000 s. Turkey, another country whose star has faded, also relied on large annual current account deficits, reaching 10 of GDP in 2011.

The key question is what is going on with the US, which, after all, represents the other side of the great imbalance? The US current account deficit has been narrowing in recent quarters, thanks to export growth.

In early 1985, when the US current account deficit reached 120 billion, about a third of today's level at current prices, the rest of the world stopped financing it. The outcome was a sudden fall in the value of the dollar, which depreciated by 50 against the Deutschemark.

On the eve of the last G 7 meeting in London, US Federal Reserve Chairman Alan Greenspan did a startling about face by soft pedaling America s trade deficit. Market pressures appear poised to stabilize and over the longer run possibly to decrease the US current account deficit and its attendant financing requirements, he said.

This is where America s multilateral trade deficit enters the equation, for it has long accounted for the bulk of America s balance of payments gap. Since 2000, it has made up fully 96 of the cumulative current account shortfall.

Aid levels are comparable to GDP, with donors covering roughly two thirds of government expenditure and the entire current account deficit, which amounts to 40 of GDP. But aid is falling and expected to drop sharply after 2014.

The financial press and many influential economists argue that a major de shy preciation of the dollar is needed to correct America s external deficit. But the US current account deficit about 6 of GDP in 2004 and 2005 mainly reflects a new round of deficit spending by the US federal government and surprisingly low personal savings by American households (perhaps because of the bubble in US residential real estate).

Sweden accumulated a current account surplus of 53 of GDP, in contrast to America s 48 of GDP deficit. Employment rose by 11 , and blue collar workers wages increased by 24 , fueling a more than 30 surge in private consumption.

If exchange rates cannot depreciate, wages and prices need to fall when a country has an unsustainable current account deficit. But, as peripheral Europe can now attest, this is a cumbersome, painful, and politically unpopular form of economic adjustment.

Within the Turkish government, this opening is viewed as an immense opportunity to reduce Turkey s heavy dependence on energy imports. In addition to securing energy supplies, the deal would help Turkey to overcome its chronic current account deficit roughly 70 of the country s 84 billion trade deficit is due to the import bill for energy supplies.

Instead, the immediate focus needs to be on boosting investment and exports in economies with a current account deficit such as France, Italy, and Spain (and the United Kingdom) and stimulating consumption in surplus countries such as Germany and the Netherlands.

One can only pity the Southern European countries. They should almost thank the French for their inability to impose effective austerity measures and thereby still run a small current account deficit, which has prevented the eurozone surplus from becoming even larger.

This internal devaluation is paying off while Ireland was still running a current account deficit of 5.6 of GDP in 2008, the European Commission expects the outturn for 2011 to have been a 0.7 of GDP current account surplus. True, much of this is mere debt service relief, given that Ireland was able to repay its foreign liabilities with self printed money, for which it pays only 1 interest.