Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
NS3040 Fall Term 2015 U.S. Current Account Balance U.S. Current Account I • Jeffrey Frankel, America the Balanced, Project Syndicate, October 20, 2014 • Starting in 1982 the prediction has been for large U.S. current account deficits due to: • Budget deficits • Low national savings rate and • Overvalued dollar • Officially the current account has been in deficit for more than three decades • Question is whether this is a problem. • In 2008 when the global financial crisis hit, investors flooded into dollar assets even though crisis originated in the U.S. 2 U.S. Current Account II • Also a substantial amount of U.S. adjustment has taken place since 1982 • Dollar depreciations of 1985-87 and 2002-2007 and • Fiscal retrenchments of 1992-2000 and 2009-2014 • Big increase in domestic production of shale oil and gas has helped the trade balance recently • As a result the US current account deficit in 2013 had • Narrowed by half in dollar terms from 2006 peak and • From 5.8% of GDP to 2.4% • In addition a systematic adjustment has also occurred in China via • Real appreciation of its currency • Higher prices for labor and land 3 U.S. Current Account III • China’s current account surplus peaked in 2008 at more than 10% of GDP • By 2013 it had narrowed to 1.9% • China’s trade adjustment in some respects followed that of Japan – original focus of American trade anxieties in the 1980s • Frankel proposes a more speculative reason why it is time to stop worrying about the U.S. current account deficit. It is possible that: • If property measured, the true deficits were smaller than has been reported • In some years they were not there at all. 4 U.S. Current Account IV • Every year US residents take some of what they earn in overseas investment income • Interest on bonds • Dividends on equities and • Repatriated profits on direct investment • And reinvest it then and there • Corporations plow overseas profits back into their operations, often to avoid paying the high US corporate income tax implied by repatriating those earnings • Technically this should be recorded as a bigger surplus on the investment income account matched by greater acquisition of assets overseas. • Often it is counted correctly, but reason to think this is not always the case. 5 U.S. Current Account V • His argument centers largely on the problem of underreporting of overseas assets, some of which probably originated in the reinvestment of overseas income. • Many revisions in U.S. figures when these assets are “discovered” • In addition, U.S. multinational corporations sometimes over-invoice impart bills or under-report export earnings to reduce their tax obligations – worked to overstate the recorded current account deficit • If the true investment income is as large as double of what is reported • the true current account balance entered the black in 2009 and • has been in surplus ever since. 6