The U.S. Balance of Payments: Current Account Deficit Analysis

Pages: 4 (1248 words) Published: December 15, 2005
The U.S. Balance of payments: Current Account deficit
Its history, current state and improvement?

The U.S. economy is the largest economy in the world with the GDP in purchasing power parity that equals to $10.99 trillion, growth rate of 3.1%, and GDP per capita of $37, 800 (2004 est.), [1]. However, it is an historical fact that the large amount of time the U.S. economy was experiencing the balance of payments' deficits. How come that economic success may go hand by hand with the Current Account or Capital Account deficit? What are the recent actions of the U.S. government to improve the existing situation and are they really effective? Let's start from the very beginning. Balance of payments is an account that represents all the transactions measured in receipts and payments between a given country and all other countries. It consists of three additional parts: Current Account (exports and imports of goods and services plus investment incomes such as rents, interest, and profits), Capital Account (country's investments abroad and foreign investments into the country), and Balancing account (it's represented by country's official reserves such as gold, foreign and domestic currency reserves, etc.), [2]. The overall economic performance is usually evaluated based on the data included in the Balance of Payments. The U.S. economic history is used to be represented in five main stages, [2]:

I.1770-1870 – The U.S. is a young debtor nation that is unable to produce much by itself, thus imports a lot, has the CA deficit, and borrows money from abroad which leads to KA surplus as the foreign capital flows into the country are really huge. Main investment flows go to the farming, roads, railroads, canals, and cattle rearing. II.1870-1920 – The U.S. is a mature debtor nation with the CA deficit as the money borrowed at the stage I should be paid back. However, the trade balance (Exports - Imports) is in the surplus, production grows rapidly. III.1920-1945 –...

References: 1. The Central Intelligence Agency (CIA). The World Factbook. http://www.cia.gov/cia/publications/factbook/print/us.html. 12.23.2004
2. Douglas A. Ruby. The Balance of Payments. http://www.digitaleconomist.com/bop_4020.html. 12.23.2004
3. Federal Reserve Bank of New York. The Balance of Payments. http://www.newyorkfed.org/aboutthefed/fedpoint/fed40.html. 06.2004
4. Research Department of Federal Reserve Bank of San Francisco. Does a Fall in the Dollar Mean Higher U.S. Consumer Prices? FRBSF Economic Letter 2004-21; August 13, 2004 http://www.frbsf.org/publications/economics/letter/2004/el2004-21.html
5. Thomas A. Pugel, International Economics. 10th edition, Irwin McGraw-Hill, 2001.
6. Bureau of Economic Analysis is an agency of the U.S. Department of Commerce. http://www.bea.gov/bea/newsrel/tradnewsrelease.htm
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