Years of Living Dangerously: From the Twin Deficits to the Balance of Financial Terror?

Isbell, Paul (2005) Years of Living Dangerously: From the Twin Deficits to the Balance of Financial Terror? Elcano Newsletter (14). 21 p.. ISSN 1698-5184

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Abstract

Economic growth in the US has been relatively impressive during the last two years and is now moving forward at about 3.5% a year. While employment growth has been the weak leg in the US recovery from the 2001 recession, there are some recent if not yet altogether conclusive signs that employment may be picking up again in a broad and sustainable fashion. Nevertheless, the US’s large and growing current account (or ‘external’) deficit, together with its significant government budget (or ‘internal’) deficit, has begun to place real limits on future US growth. Is current US growth sustainable in light of these ‘twin’ current account and government budget deficits? If these deficits themselves are sustainable, then, yes, we would conclude that US growth is also currently unfolding upon a stable foundation –at least in the short and middle run–. Perhaps it would be easier then to ask whether or not the current account deficit itself is sustainable? Unfortunately, our answer is no. Once this is established, the only real questions that remain to be answered are: (1) at how high a level –and for how long– can the external deficit be maintained? Put in other words, when will the inevitable correction begin? Will the adjustment occur within George Bush’s second presidential term? Or only after the next presidential election? Furthermore, (2) what will be the consequences of this ultimate readjustment of the current account? Will the correction be severe or mild? Will the US –and the world– economy experience a significant recession, or a mere soft landing? Finally, (3) what will be the implications for US domestic and foreign policies, and for the economic and political responses from the rest of the world?

Item Type:	Article
Additional Information:	Estudio sólo disponible en inglés .- Estudio basado en la presentación ofrecida en La Casa América el 28 de Febrero de 2005 Dentro del Seminario "Tendencias de las políticas de Estados Unidos en los próximos cuatro años" .- Incluido en el Especial Elcano "elecciones Estados Unidos 2004"
Uncontrolled Keywords:	Economía y Comercio Internacional
Subjects:	INTERNATIONAL COOPERATION > COUNTRIES AND REGIONS > UNITED STATES PUBLIC FINANCE; BANKING; INTERNATIONAL MONETARY RELATIONS > PUBLIC FINANCE; TAXATION > NATIONAL DEBT. PUBLIC FINANCE; BANKING; INTERNATIONAL MONETARY RELATIONS > CURRENCIES; FINANCING > DEFICIT. PUBLIC FINANCE; BANKING; INTERNATIONAL MONETARY RELATIONS > INTERNATIONAL MONETARY SYSTEM > EXTERNAL DEBT. ECONOMIC POLICY; SOCIAL POLICY; PLANNING > ECONOMIC POLICY; PLANNING > ECONOMIC POLICY.REGIONAL POLICY ECONOMIC CONDITIONS; ECONOMIC RESEARCH; ECONOMIC SYSTEMS > ECONOMIC CONDITIONS > ECONOMIC CONFLICTS ECONOMIC CONDITIONS; ECONOMIC RESEARCH; ECONOMIC SYSTEMS > ECONOMIC CONDITIONS > COST OF LIVING.ECONOMIC GROWTH ECONOMIC CONDITIONS; ECONOMIC RESEARCH; ECONOMIC SYSTEMS > ECONOMIC CONDITIONS > GROWTH POTENTIAL
Divisions:	Real Instituto Elcano, RIE
Depositing User:	Jorge Horcas Pulido
Date Deposited:	31 Jan 2012 01:59
Last Modified:	01 Feb 2012 08:53
URI:	http://biblioteca.ribei.org/id/eprint/946

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