The United States as a Debtor Nation

by Cline, William R.

• ISBN13: 9780881323993
• ISBN10: 0881323993
• Format: Paperback
• Copyright: 2005-09-30
• Publisher: Peterson Inst for Intl Economics

Summary

The United States has once again entered into a period of large external imbalances. This time the current account deficit, at nearly 6 percent of GDP in 2004, is much larger than in the last episode, when the deficit peaked at about 3.5 percent of GDP in 1987. Moreover, the deficit is on track to become substantially larger over the next several years. This study examines whether the large and growing current account deficit is a problem, and if so, how problem can be solved.

Author Biography

William R. Cline holds a joint appointment at the Institute for International Economics, where he has been a senior fellow since 1981, and the Center for Global Development.

Table of Contents

Preface	xi
Acknowledgments	xix
Overview	1	(8)
The International Debt Cycle and the United States as an External Debtor	9	(24)
The Debt Cycle	10	(3)
Measuring the Net International Investment Position	13	(3)
The Debt Cycle in Practice	16	(9)
The Global Balance Sheet Discrepancy	25	(3)
Debt Cycle Status and Growth Performance	28	(2)
Appendix 1A Estimating the Net International Investment Position	30	(3)
Valuation Effects, Asymmetric Returns, and Economic Net Foreign Assets	33	(36)
US Valuation Effects	33	(15)
US Asymmetric Capital Returns	48	(9)
Capital Services and Economic Versus Accounting Net Foreign Assets	57	(6)
Alternative Measures: Cash Flow Versus Debt Burden	63	(6)
Projecting the US Current Account Deficit and Net Foreign Assets	69	(30)
A Simple Projection Model	69	(4)
Calibration and Data	73	(3)
Identifying the Exchange Rate Lag	76	(2)
Backcast Performance	78	(2)
Baseline Projections	80	(5)
Comparison with Other Projections	85	(5)
Adjustment Scenarios	90	(5)
Impact Parameters	95	(4)
US Fiscal Imbalance and the External Deficit	99	(54)
Understanding the Linkages	99	(18)
The Decline in Personal Saving	117	(5)
Fiscal Outlook for 2005--10	122	(3)
Long-Term Fiscal Problem	125	(3)
General Equilibrium Framework	128	(4)
Toward Fiscal and External Adjustment	132	(3)
Appendix 4A A Simple General Equilibrium Model Relating the Trade and Fiscal Balances	135	(18)
Sustainability of the US Current Account Deficit and the Risk of Crisis	153	(66)
US Share in Global Portfolios	154	(13)
Debt Ratios and Critical Thresholds	167	(7)
Hard Landing, Long-Term Burden, and Protectionist Pressures	174	(10)
The Evolving Crisis Debate	184	(27)
Appendix 5A Key Features of Leading Recent Analyses	211	(8)
Impact of the US External Imbalance on the Rest of the World	219	(40)
Impact on Global Demand	219	(4)
Impact on Interest Rates	223	(2)
Emerging-Market Capital Supply and Current Account Performance	225	(4)
Developing-Country Reserves: Burden or Bonanza?	229	(2)
East Asian Exchange Rate Rigidity	231	(2)
Achieving Global Adjustment	233	(15)
Appendix 6A Optimal Exchange Rate Realignment	248	(5)
Appendix 6B Recent Alternative Profiles Proposed for Global Adjustment	253	(6)
Principal Findings and Policy Implications	259	(16)
The International Debt Cycle	259	(2)
Valuation Effects, Asymmetric Returns, and Economic Net Foreign Assets	261	(2)
Forecasting the US Current Account Deficit and Net Foreign Assets	263	(2)
The Role of Fiscal Adjustment	265	(3)
Sustainability and Risks of the Current Account Deficit	268	(4)
Global Impact of US External Imbalance	272	(3)
Policy Implications	275