.. (compared to a rise of) an average of 0.3%."
A less sanguine Kenneth Rogoff, the IMF's new Chief Economist wrote in
"The Economist" in April: "When countries run sustained current-account
deficits up in the range of 4 and 5% of GDP, they eventually reverse,
and the consequences, particularly in terms of the real exchange rate,
can be quite significant."
Rogoff alluded to the surreal appreciation of the dollar in the last
few years. This realignment of exchange rates rendered imports to the
USA seductively cheap and led to "unsustainable" trade and current
account deficits. The IMF concluded, in its "World Economic Outlook",
published on September 25, that America's deficit serves to offset -
actually, finance - increased consumption and declining private savings
rather than productive investment.
Greenspan concurred earlier this year in "USA Today": "Countries that
have gone down this path invariably have run into trouble, and so would
we." An International Finance Discussion Paper released by the Fed in
December 2000 found, as "The Economist" put it, that "deficits usually
began to reverse when they exceeded 5% of GDP. And this adjustment was
accompanied by an average fall in the nominal exchange rate of 40%,
along with a sharp slowdown in GDP growth.
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