Is the U.S. Current Account Deficit Sustainable?
The counterparts to the huge current account deficits the United States has registered over the past decade are the capital inflows that have financed them. This net borrowing adds up over time so that today foreign holdings of U.S. assets exceed U.S. holdings of foreign assets by $2.5 trillion, the largest negative net international investment position (NIIP) in the history of the world. However, the U.S. NIIP-to-GDP ratio does not look inordinately high, and the U.S. still boasts a small surplus in net international investment income. Moreover, the breadth, liquidity and transparency of U.S. capital markets, not to mention the status of the United States as the world’s most advanced economy, continue to make it an attractive investment destination. The United States cannot borrow from the rest of the world forever, but foreigners may be willing to finance large U.S. current account deficits for the foreseeable future. Although we look for the dollar to depreciate further in the quart
