ECO4713 - International Macro Economics

Discussion 1

According to Page 328 of our textbook, when a country’s imports exceed its exports, the country has a current account deficit. Sustainability implies that we can hold a state of deficit in a relatively healthy manner. I believe that the United States’ current account deficit sustainable for now because the U.S. is at the center of the world’s international monetary system, and there is enough capital movement to maintain our trend. As “Stop Worrying and Love the Deficit” Preview the document by The Economist states, states our world economic system replicates the post-war Bretton Woods era. Although America has a deficit, we have low-interest rates and high demand that makes our country the hub of international investment. This movement of capital is sustainable, at least at its current state. The Economist article also adds that although we are enduring the deficit, East Asia, America’s primary lender, could mature their financial system and make its currencies are ready to float. This change might cause East Asia to change its economic position, causing it to reverse its roles and take our place eventually.

Additionally, as Matthew C. describes in “Who’s Really to Blame for America’s Trade Deficit?,” the U.S. deficit revolves not around Americans spending too much, but around Americans “mak[ing] too little because everyone else spends far less than they can afford.” This implies that the current account deficit is dependent on the effect of a real exchange rates and world demand for U.S. labor and output. At its current state, the U.S. current account deficit can maintain itself because of its role in the world economy.