The Dollar and the Current Account Deficit:How Much Should We Worry?

The Dollar and the Current Account Deficit: How Much Should We Worry?

By Michael Mussa
Senior Fellow, the Peterson Institute for International Economics

For presentation at the American Economics Association Meetings
Chicago, IllinoisAt 10:15 a.m. on January 6, 2007

Draft of January 2, 2007.

※ memo: At its latest quarterly reading, the U.S. current account deficit was running at $900 billion per year. This is equivalent to almost 7 percent of U.S. GDP [, which] is roughly double the peak deficit as a share of GDP that was reached in the l980s. Like most, but by no means all, international economists, I have said for some time that the U.S. current account deficit cannot continue to expand as it has for the past fifteen years and that at some time, probably before much longer, it will need to start to shrink as a share of U.S. GDP.