Economists say that the Current Account deficit doesn't matter... and may be a good thing. But there is agreement that inflation is a bad thing. No connection, huh?
So, let's see, current account deficit is good and inflation is bad, but current account deficit seems to be contributing to the weakness of the dollar which makes imported items... such as oil?... more expensive which contributes to inflation which is bad.
In a report released Thursday, William Powers, managing director of PIMCO's portfolio management and investment strategy groups, said the bond management firm has increased its currency exposure to 5 percent from 3 percent.
The fund was constrained to limit its currency exposure to 3 percent in the past because of volatility in the currency market.
"Today with the likelihood that the dollar is about to embark on its next downward leg, PIMCO's Investment Committee has increased the tolerance for currency exposures," said Powers.
PIMCO will also maintain a diversified portfolio to include the yen, euro, and emerging market currencies.
Overall, Powers has a bearish outlook on the dollar, saying the magnitude of the U.S. currency's downtrend is "as great as 20-25 percent, and perhaps greater than that."
With the Federal Reserve expected to pause its monetary tightening soon, Power said the markets would refocus on the large U.S. current account deficit, currently at 7 percent of gross domestic product. The current account is a measure of international trade, in physical goods and international transactions.
The roughly $805 billion U.S. current account gap has contributed to dollar weakness in three of the last five years.
He also cited the diminished appetite for the greenback and other U.S. assets by various central banks including oil producers whose revenues are dollar-denominated.
Oh, these economists are so much smarter than the rest of us because they can see that the current account deficit is good... and that the actions of the Federal Reserve Board to raise interest rates and stifle the economy are needed because it is their job to do something about inflation which is bad... and the current account deficit is good... but the weakness of the dollar will reduce the current account deficit because U.S. products will be cheaper... and that is bad because U.S. employment will increase as we buy fewer imports... and, oh well....