>During the past six years, about 40 percent of the total increase in
>our capital stock in effect has been financed, on net, by saving
>from abroad. This situation is reflected in our ongoing current
>account deficit, which, by definition, is a measure of our net
>investment in domestic plant and equipment financed with foreign
>funds, both debt and equity. But this deficit is also a measure of
>the increase in the level of net claims, primarily debt claims, that
>foreigners have on our assets. As the stock of such claims grows, an
>ever-larger flow of interest payments must be provided to the
>foreign suppliers of this capital. Countries that have gone down
>this path invariably have run into trouble, and so would we.
>Eventually, the current account deficit will have to be restrained.
>The nation's economic potential will be brighter if that comes about
>through an increase in domestic saving rather than a reduction in
>domestic investment.
This is one of those rare instances where somebody important worries about this in public. The orthodox thing for AG to do would be to tighten policy and restrain U.S. growth rates to reduce imports. Clearly he's not eager to do this. So how will this be resolved? With a dollar crisis and capital flight, leading to an externally imposed austerity regime? A big question as the U.S. economy recovers...
Doug