The United States as usual has a sizable deficit in the current account of its balance of payments, trade account and other current accounts, current account items.
Sentiment: NEGATIVE
Well, the U.S. is running a current account deficit; we are creating lots of investment opportunities in the United States that exceed our own domestic savings rates, so the issue here is to encourage higher savings rates in the United States.
But because we in the United States finance our current account deficit by borrowing in our own currency, we can move to a more competitive dollar without the adverse effects that followed currency declines in other countries.
Essentially, when we run a deficit, we are borrowing money to buy things that are made overseas.
America's largest trade deficit is with China, a nation that enjoys Permanent Normal Trade Relations with the U.S. and ties its currency to the dollar to make it a more competitive trading partner.
U.S. capital formation, which has been pretty high in the '90s and very high in the late 1990s, is what is being financed by the savings of the rest of the world, generally poorer than ourselves, because our deficit on current account, chronic deficit, is their surplus, and they have been willingly bringing that to the American market.
Our fiat currency is under increasing stress with our large and growing trade deficits. We have a federal deficit that is calculated in the trillions when we take into account the net present value of the future Social Security and Medicaid obligations we are creating today.
To finance this trade deficit, the U.S. has to borrow from the rest of the world or sell American assets like stocks, businesses, and real estate to the rest of the world.
Well, a deficit reflects an imbalance between spending and revenue, and so narrowing it requires acting on one, the other or both.
Don't forget what I discovered that over ninety percent of all national deficits from 1921 to 1939 were caused by payments for past, present, and future wars.
The American people will eventually get hurt by this accumulated deficit. That's the problem. We have too much deficit. We have to find a solution.
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