Today at Cafe Hayek, Professor Don Boudreaux started an interesting discussion on the benefits of having a current account deficit.
His argument for wanting such a deficit revolve around the concept that the U.S. is providing a "wealth-storage" facility for foreigners. That means that U.S. consumers get cheap products and the U.S. government gets plenty of buyers for it's IOUs and the economy gets some boost foreign investment in businesses.
It does make sense as an argument and, perhaps, it works well that way. A constant net inflow of cash should keep the economy humming along. Yet it make many people uneasy about the reliance on the Chinese who have a $160 billion current account surplus with the U.S. Yes that is only 1% or so of the total U.S. economy, but a lot of key business depends on the Chinese now. And there are many who don't have a warm and gooey feeling when it comes to the Chinese having our long-term best interests in mind.
I guess the long-term impact won't really be known for awhile. Let's hope it doesn't turn out to be the way some people think:
US current account deficit 'unsustainable' – NY Fed chief
By Christopher Swann in Washington
Published: January 23 2006 19:29 | Last updated: January 23 2006 19:29
Timothy Geithner, president of the New York Federal Reserve, on Monday dismissed the view that the US current account deficit was sustainable, suggesting the risk of a sudden fall in the dollar would grow the longer the trade gap widened.