Gość: Bert
IP: *.214.70.243.Dial1.Boston1.Level3.net
01.03.02, 02:16
COMMENT & ANALYSIS: An unsustainable black hole: The US current
account deficit cannot grow indefinitely without undermining the
dollar's astonishing strength
Financial Times; Feb 27, 2002
By MARTIN WOLF
Alan Greenspan's Federal Reserve has done a good job of rescuing the US
economy from recession. Yet there remains a worry. By its monetary
easing, the Federal Reserve has followed the core principle of Keynesian
policymaking: look after the short run and the long run will look after itself.
But the long run can bite back.
The belief that it will do so underlies the gloomy prognostications of those
who fear a "double dip" recession. Behind this worry is the view that three
imbalances emerged in the course of the second half of the 1990s: excess
corporate investment; insufficient household savings; and an unsustainable
current account deficit. Of these, only the first is disappearing. The other
two have not been corrected. On the contrary, the Federal Reserve's
strategy and the hopes of the rest of the world for a US-led recovery depend
on their not being corrected.
I have looked at household savings before ("When shoppers become
savers", January 23). But will the current account deficit continue on its
merry way? "Not for ever" is the answer.
At the end of 2000, the net international investment position of the US was
minus Dollars 2,187bn, a little over a fifth of gross domestic product. The
current account deficit in the first three-quarters of 2001 was running at an
annualised rate of Dollars 419bn (Pounds 294bn). If one ignores changes in
valuations, this means the net international position must have been roughly
minus Dollars 2,600bn at the end of last year. Thus, neither the current
account deficit nor, inevitably, the stock of net liabilities to the rest of the
world improved, even during a slowdown.
The US, it is hoped, is now on its way to a demand-led recovery. The
current account deficit is therefore likely to widen further. Goldman Sachs
forecasts a rise in the US current account deficit from about Dollars 420bn
last year (4.1 per cent of GDP) to Dollars 730bn (5.9 per cent of GDP) by
2006.
Five years from now the stock of net liabilities (if one ignores changes in
valuations) would be Dollars 5,800bn. This would be 46 per cent of US GDP
and about 15 per cent of the rest of the world's GDP (provided the dollar
stays strong). Even that is not the end of the story. In a study published in
1999, Catherine Mann, formerly on the staff of the Federal Reserve Board,
argued that US net liabilities could reach 64 per cent of GDP by 2010.*
This trend cannot last. The difficulty is knowing when and how it will end.
But the longer the process continues, the more painful that ending is likely
to be. In considering how it might finish, one must ask who is financing the
deficit. The answer, strangely, is that we do not really know.
The International Monetary Fund says last year the US current account
deficit was about Dollars 392bn. The largest offsetting surplus was Japan's
Dollars 91bn. Newly industrialised Asian economies added Dollars 44bn,
Asian developing countries Dollars 24bn and oil exporters Dollars 51bn. The
European Union contributed nothing, with a surplus of only Dollars 1bn. But
the world as a whole ran a notional current account surplus with itself of
Dollars 182bn. About this black hole little can be said, except that it must
largely consist of unrecorded exports and so capital flight from developing
countries.
Japan's surplus is structural. Since their financial crisis, other Asian
economies have also found it difficult to absorb their high savings. Thus
there are sizeable surplus savings looking for a safe home. But that surplus
is considerably smaller than the US deficits. How stable the black hole in
the global balance of payments is must be unknowable.
If we do not know how exactly the US deficits are being financed, we do
know this is happening with ease. As J P Morgan Chase notes, the real
trade-weighted dollar has risen by 6.5 per cent over the past year. It is
almost as high today as it was in the mid-1980s.
Yet it is hard to believe this financing will continue with such ease
indefinitely. Many analysts downplay such worries. They argue that the rest
of the world has to put its surplus savings somewhere; that the US is
protected by its ability to borrow in its own currency and to attract inward
direct investment and equity purchases; and that in 2000, for example, net
payments of investment income to foreigners were a mere Dollars 9.6bn,
even though net liabilities exceeded Dollars 2,000bn.
Yet the costs of service will rise, along with the net liabilities. Moreover, the
sum of net equity inflow and net inward foreign direct investment fell from
Dollars 221bn in 2000 to an annualised rate of only Dollars 2.1bn in the first
three-quarters of 2001, while net bond inflows, excluding treasury flows, ran
at an annualised rate of Dollars 409bn, up from Dollars 275bn in 2000. This
shift was not surprising, given changes in equity valuations and corporate
profitability. But it was also a way of hedging against valuation risks.
What makes the claims relatively safe for the US also makes them risky for
foreign investors. As US assets become a bigger component of their wealth,
they must become nervous about the currency and valuation risks.
The dollar is vulnerable to such changes in sentiment. At present, exports of
goods and services are about three-quarters of imports. The growth of
imports, other things being equal, is about 1.7 times as fast as GDP. If
GDP grows at 3.5 per cent a year, imports will grow at 6 per cent in real
terms. If the trade deficit is to remain constant, exports must grow at 8 per
cent.
Suppose, instead, that the trade deficit is to halve, in real terms, over five
years. Then exports must grow at 10 per cent a year in real terms. But US
exports normally grow only as quickly as the rest of the world's GDP. If the
world economy continues to grow as fast as it di
