The counterargument hinges on the difference between the current account deficit and the trade deficit. The current account deficit is equal to the trade deficit plus the cost of servicing the net international asset position the net rent, interest, and dividends owed to foreigners who have invested their capital in the US.

Indeed, every year for more than three decades, the US Bureau of Economic Analysis (BEA) has reported a current account deficit. And yet now we must ask whether the US current account deficit is still a problem.

Indeed, America s trade deficit in manufactures is roughly equal to its current account deficit (the amount by which domestic investment exceeds domestic saving). So those concerned with job losses in US manufacturing should join the chorus lobbying for a much smaller fiscal deficit.

Large current account imbalances continue to characterize the global economy, and a lower dollar would contribute to reducing the United States deficit.

But if the US fails to narrow its savings gap, its current account deficit will not disappear, regardless of where the dollar goes. Whether America can achieve decent growth while keeping its current account deficit in check depends on whether it can reinvigorate its ability to innovate and create, thereby restoring competitiveness and creating demand at the same time.

In short, substantial RMB appreciation would reduce the bilateral US China trade deficit and China s overall trade surplus significantly, but it would do little to reduce the overall US trade deficit. In the absence of a generalized appreciation of all Asian currencies and unchanged American policies, possibly only a deep recession could reduce the overall US current account deficit.

So, how should the US economy s jobs deficit, investment deficit, and long run fiscal deficit be addressed?

Ireland is the only country that has lowered its prices and wages, and its current account deficit is about to swing into surplus. By contrast, Spain s external deficit is still above 4 of GDP, while Portugal and Greece recently recorded astronomical figures of around 10 .

Growth momentum has fizzled and, with inflation persistently high, Indian producers are struggling to compete in world markets. The current account deficit is increasing relentlessly, owing to a widening trade deficit (now at 13 of GDP), raising the danger of a balance of payments crisis.

There is both a knowledge deficit and an understanding deficit.

Since 2007, the US current account deficit has narrowed, but not because of a higher savings rate. Rather, the external deficit has been squeezed by a collapse in investment activity, while America s overall savings rate has fallen below 13 of GDP, owing to worsening government finances.

In the short run, the US current account deficit will remain, regardless of which country runs bilateral surpluses. Thus, China s continued reinvestment of its current account surplus in US government securities is of utmost important for US growth and financial stability.

Perhaps the most notable consequence of Spain s recent reform efforts is its current account surplus the country s first in more than two decades. At the peak of the crisis, Spain s current account deficit amounted to an unprecedented 10 of GDP.

After all, America s still large current account deficit guarantees that the dollar will continue to fall. Even so, the macroeconomic logic that large current account deficits signal that currencies are overvalued continues to escape the world s international financial investors and speculators.

The financial press and many influential economists argue that a major de preciation of the dollar is needed to correct America s external deficit. But the US current account deficit about 6 of GDP in 2004 and 2005 mainly reflects a new round of deficit spending by the US federal government and surprisingly low personal savings by American households (perhaps because of the bubble in US residential real estate).

Europe s Trust Deficit

Europe s Vision Deficit

The Energy Deficit

The financial press and many influential economists argue that a major de shy preciation of the dollar is needed to correct America s external deficit. But the US current account deficit about 6 of GDP in 2004 and 2005 mainly reflects a new round of deficit spending by the US federal government and surprisingly low personal savings by American households (perhaps because of the bubble in US residential real estate).

BERKELEY The United States is beset by four deficits a fiscal deficit, a jobs deficit, a deficit in public investment, and an opportunity deficit. The budget proposals put forward by presidential candidate Mitt Romney and his running mate, Paul Ryan, could reduce the fiscal deficit, but would exacerbate the other three.

But none of these is the deficit that really matters. The deficit that prevents Europe from drawing a line under its crisis is a deficit of trust.

The really important target for any country starting an adjustment program with a double digit current account deficit must be export growth. Missing this target is what has set Greece apart.

For example, US multinational corporations sometimes over invoice import bills or under report export earnings to reduce their tax obligations. Again, this would work to overstate the recorded current account deficit.

If a considerable fraction of the world economy wants to run a current account surplus (by 2006, this included much of emerging Asia, most oil exporters, and Japan), an equal share of the world economy must run a deficit. In the period after 1998, the United States provided almost the entire required deficit.

Romney has provided few details about his deficit reduction plan. But, based on what he has revealed, we know that it would increase the jobs deficit, the investment deficit, and the opportunity deficit, with negative consequences for future growth and prosperity.

Differences among the eurozone countries in growth rates of productivity and wages will continue to cause disparities in international competitiveness, resulting in trade and current account imbalances. Germany now has a current account surplus of about 215 billion a year, while the rest of the eurozone is running a current account deficit of about 140 billion.

It perpetuates deficit spending.

Europe s Pointless Deficit Targets?

America s Misplaced Deficit Complacency

Global Warming s Technology Deficit

Closing America s Jobs Deficit

The Global Trust Deficit

China breaks Crowther s mold. Given that it has been running an investment income deficit, a trade surplus, and current account surplus, it seems that it should be classified as a debtor repayer.

Remarks by Federal Reserve Governor Ben S. Bernanke at the Sandridge Lecture entitled The Global Saving Glut and the U.S. Current Account Deficit , Virginia Association of Economics, Richmond, Virginia, 10 March 2005.

In response, current account balances the Achilles heel of the so called East Asian growth miracle went from deficit to surplus. For the ASEAN 5, current account deficits averaging 4 of GDP in 1996 97 swung dramatically into average surpluses of 6.8 of GDP in 1998 99.

On the eve of the last G 7 meeting in London, US Federal Reserve Chairman Alan Greenspan did a startling about face by soft pedaling America s trade deficit. Market pressures appear poised to stabilize and over the longer run possibly to decrease the US current account deficit and its attendant financing requirements, he said.

Attention deficit disorder, bipolar disorder.

The Sino American Trust Deficit

What is the Deficit Endgame?

For the ASEAN 5, current account deficits averaging 4 of GDP in 1996 97 swung dramatically into average surpluses of 6.8 of GDP in 1998 99. A similar transformation occurred in South Korea, where a 2.8 current account deficit in 1996 1997 became an 8.6 surplus in 1998 1999.

According to the Public Auditor, the Government of Guam already faced a significant deficit in early January 2005, on the order of 300 million. It was noted that the 300 million deficit did not take into account millions of dollars of unpaid tax refunds and pending earned income tax credits, which has been an outstanding issue in Guam.

Within the Turkish government, this opening is viewed as an immense opportunity to reduce Turkey s heavy dependence on energy imports. In addition to securing energy supplies, the deal would help Turkey to overcome its chronic current account deficit roughly 70 of the country s 84 billion trade deficit is due to the import bill for energy supplies.

Yet the response in terms of exports has been disappointing. Though the country's whopping current account deficit is gone, this reflects a collapse of imports a result of austerity rather than an export boom.

Indeed, France s manufacturing industry has shrunk to barely 9 of GDP, less than Britain s manufacturing share (10 ) and less than half of Germany s (20 ). Its current account is sliding into an ever deeper deficit hole.

Is it not the case that the problem in the US has been too little savings, rather than too much? Doesn t the country s persistent current account deficit reflect excessive consumption, rather than weak effective demand?