US CURRENT ACCOUNT DEFICIT

US CURRENT ACCOUNT DEFICIT

 

            In line with the economic situation of the United States, it can be said that the US dollar had been declining in the past three years while the current account deficit of the nation has expanded. This paper will give emphasis to the current account deficit faced by the US ( 2005). It can be said that Deficit can emerge if the currency moves above the sustainable real exchange rate and only a real depreciation can eliminate such a deficit. It is noted that the US current account deficit has been increasing enormously since the early 1990s.

In year 2000, the US CAD have surpasses even those of the era and in the year 2004 such deficit has been projected to set a new record. A current account deficit has been defined as the difference between the nations’ saving and national investments.

The deficit can be perceived as sustainable or unsustainable depending on the source of the discrepancies. It can also be noted as productive or unproductive. The factors that affect the USCAD have been coined to change in recent years. In the early years of 1990s, it is noted that there is only moderate national savings having a large inflows of foreign savings.  Such event sustained the rising investment. The rising current account deficits of the United States had been noticed by the media and regarded as one of the problems which should be given attention by the federal government.

            In order to solve such issue the federal government of the US must be able to implement effective and long-term approaches.  To finance the CAD, the federal government must import about trillion of foreign capital each year and approximately billion per working day. However, this suggestion is unattainable and impossible to reach, specifically for Hence, if the federal government could not solve such problem in a long-term solution, it would be more helpful to consider short-term plan.  Herein, the federal government can use a three part packaged approach which include credible, reliable, sizable reduction in the budget deficit of the US, a gradual and continuous but substantial rearrangement of exchange rates and the expansion of domestic demand in larger and stable economies outside the US. Having good relation with other nation is another factor to reduce current account deficits.

            The federal government must also look for alternative solutions on how to acquire capital investments in a slow but sure manner.  In addition, the federal government should be able to maximise its resources and use this effectively. It is also a possible that the federal government fiscal accounts can be reduced for the reduction of current account deficits.

            And most especially, to be able to solve such problem regarding current account deficit, it can be concluded that responsible and efficient policies should be implemented before encountering bigger problems caused by such deficits.

 

 

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