In effect, America's collective
current-account deficits are sustainable indefinitely."
In another paper, with Paul Davidson of the University of Tennessee,
the authors went as far as suggesting that America's interminable
deficit maintains the liquidity of the international trading system. A
reduction in the deficit, by this logic, would lead to a global
liquidity crunch.
Others cling to a mirror image of this argument. An assortment of
anti-globalizers, non-governmental organizations, think tanks, and
academics have accused the USA of sucking dry the pools of
international savings painstakingly generated by the denizens of mostly
developing countries. Technically, this is true. US Treasury bonds and
notes compete on scarce domestic savings with businesses in countries
from Japan to Russia and trounce them every time.
Savers - and governments - prefer to channel their funds to acquire US
government obligations - dollar bills, T-bills, T-notes, equities,
corporate bonds, and government bonds - rather than invest in their
precarious domestic private sector. The current account deficit - at
well over 4 percent of American GDP - absorbs 6 percent of global gross
savings and a whopping three quarters of the world's non-domestic
savings flows.
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