Increasing the Current Account Deficit Will Not Heal the US Economy

Christopher Rugaber of AP had an article published in a number of outlets yesterday noting that some economic indicators seem to have stabilized in the past month and deflation seems to be less of a danger.

However, what caught my eye was this paragraph –

Also Thursday, the Commerce Department said the broadest measure of the U.S. trade deficit widened for the fourth straight quarter. The current account trade deficit grew to $123.3 billion in the April-to-June period, a 12.9 percent increase from the first quarter. A year of growth could be viewed as a healing sign for the U.S. economy as Americans slowly regain their appetite to spend. That pushes up imports and widens the current account deficit.

(Here is the news release from the Commerce Department).

The notion that an increased current account deficit may be a healing sign for the American economy is surely one of the goofier statements I’ve read lately. Rugaber evidently believes that Americans’ appetite for spending is a good thing. That’s part of what got us into this mess in the first place!

The fact that someone would think that healing the US economy means going back to doing what we were doing before the crisis strikes me as kind of depressing. As Roubini said, we have to spend (consume) less and save (invest) more.

Incidentally, the total deficit for the four quarters to June was $430.9 billion, or around 3% of GDP.

This entry was posted in Economics. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *