The United States is spending more than what it is earning (Catherine Mann, 2002). In effect, the United States is living above and beyond what the economy can produce (Mann, 2002). By 2005, the current account deficit is on track to be at 7 percent of the country’s gross domestic product (GDP) (Brad Setser ; Nouriel Roubini, 2005). Just how much is 7 percent of the country’s GDP? At current levels, it would reach about $800 billion dollars (Peter Jarret, 2005).
A Current Account Deficit is a country’s trade deficit, or when the country imports more goods than it exports (Kimberly Amadeo, 2008), plus the amount of what it pays for the interest on the loans that a country acquires to bridge the losses from the overimportation of goods and services (Amadeo, 2008). These loans are sourced from foreign capital markets (Amadeo, 2008). The notion is that if the current account deficit slows down in a dramatic fashion, this might trigger a recession, as the value of the dollar would plummet and increase interest rates (Marc Labonte, 2005).
The correction of this imbalance should place it among the priorities of United States economic planners (Peter G. Peterson Institute For International Economics, 2008). The recommended remedies include reducing in sizable amounts the budget deficit, realignment of the exchange rates and expanding the demand for locally-produced goods in the export markets (Peterson, 2008). For a country, or even a person, that individual must learn to live within its income (Mann, 2002). Other measures must be put in place as well.
The government must stimulate savings in its people (Maurice Obstfeld ; Kenneth Rogoff, 2004). But I believe that teaching people to save is only part of the solution. People must discipline themselves in only spending what they actually earn. This means eliminating credit and other expense-generating schemes. This also means buying what you need on cash terms.
Addressing the deficit will take a considerable amount of effort and discipline from the citizenry and the state. Effort, as the state has to impose restrictions on the non-essential itmes that people don’t actually need. Discipline, as the people have to be weaned away from acquiring things that they only think that they need, often employing credit as the agent of acquisition. Then, and only then, can the United States begin to make a considerable dent in its deficit spending.
Amadeo, K. (2008). Current account deficit-CBO report on the current account deficit. Retrieved September 18, 2008, from
Jarret, P. (2005, May). US current account: dealing with the deficit. OECD Observer Number 255
Labonte, M. (2005). Is the US current account deficit sustainable? Retrieved September 17, 2008, from
Mann, C.L. (2002). Perspectives on the US current account deficit and sustainablity. The Journal of Economic Perspectives Volume 16 number 3 pp. 131-152
Obstfeld, M., Rogoff, K. (2004, November 1). The US deficit problem is not only a domestic issue, but a global concern and neither candidate has the answer. Financial Times London 1st Edition page 19
Peter G. Peterson Institute For International Economics. (2008). US current account deficit. Retrieved September 18, 2008, from
Setser, B., Noubini, N. (2005, July/August). How scary is the deficit? Foreign Affairs