US deficit

[Bradford DeLong]

>Goldman Sachs writes:
>
>>   In a highly uncertain environment, one element
>>of our economic outlook in which we have a lot
>>of confidence is that the US trade and current
>>account deficits will keep rising. This is because
>>a decade of severe deterioration has produced
>>nasty self-reinforcing dynamics for both trade
>>and investment income flows, creating high
>>hurdles for the US export growth needed to trim
>>these deficits.
>>   There are three ways to break these dynamics:
>>strong growth abroad, weaker growth (probably
>>renewed recession) at home, and depreciation of
>>the dollar. Of the three, dollar depreciation is the
>>most likely to do the job, but only over a long
>>stretch of time.
>>   We therefore reaffirm our view, stated this past
>>March, that the US current account deficit will
>>reach 61/% of GDP by mid-decade and that trade
>>drag will slice 1/2 percentage point from US real
>>GDP growth in 2003. This drag is almost twice
>>the consensus expectation, despite the fact that
>>our growth outlook is weaker.

Ummm... Am I in the right universe? I mean, I don't understand why 
the dollar and the current account are where they are with no visible 
means of support...

Is it time to start saying "dollar bubble"? When it crashes it could be bad...

Brad DeLong