Current Account Fact and Fiction

41 Pages Posted: 24 Nov 2009 Last revised: 1 Dec 2009

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Espen Henriksen

Department of Financial Economics, BI Norwegian Business School

Frederic J. Lambert

International Monetary Fund (IMF)

Chris Telmer

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 2009

Abstract

With US trade and current account deficits approaching 6% of GDP, some have argued that the country is "on the comfortable path to ruin" and that the required "adjustment'' may be painful. We suggest instead that things are fine: although national saving is low, the ratios of household and consolidated net worth to GDP remain high. In our view, the most striking features of the world at present are the low rates of investment and growth in some of the richest countries, whose surpluses account for about half of the US deficit. The result is that financial capital is flowing out of countries with low investment and growth and into the US and other fast-growing countries. Oil exporters account for much of the rest.

Suggested Citation

Backus, David K. and Henriksen, Espen and Lambert, Frederic J. and Telmer, Christopher I., Current Account Fact and Fiction (November 2009). NBER Working Paper No. w15525. Available at SSRN: https://ssrn.com/abstract=1510475

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Espen Henriksen

Department of Financial Economics, BI Norwegian Business School ( email )

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Norway

Frederic J. Lambert

International Monetary Fund (IMF) ( email )

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Christopher I. Telmer

Carnegie Mellon University - David A. Tepper School of Business ( email )

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United States
(412) 268-8838 (Phone)
(412) 268-6837 (Fax)

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