"
Never before has the current account deficit continued to expand in a
recession. Morgan Stanley predict an alarming shortfall of 6 percent of
GDP by the end of next year. The US is already the world's largest
debtor having been its largest creditor only two decades ago.
Such a disorientating swing has been experienced only by Britain
following the Great War. In five years, US net obligations to the rest
of the world will grow from one eighth of its GDP in 1997 to two fifths
of a much larger product, according to Goldman Sachs. By 2006, a sum of
$2 billion dollars per day would be required to cover this yawning
shortfall.
Rogoff - and many other scholars - foresee a sharp contraction in
American growth, consumption and, consequently, imports coupled with a
depreciation in the dollar's exchange rate against the currencies of
its main trading partners. In the absence of offsetting demand from an
anemic Europe and a deflation-struck Japan, an American recession may
well translate into a global depression. Only in 2003, the unwinding of
these imbalances is projected by the IMF to shave 3 percentage points
off America's growth rate.
But are the twin - budget and current account - deficits the inevitable
outcomes of American fiscal dissipation and imports run amok - or a
simple reflection of America's unrivalled attractiveness to investors,
traders, and businessmen the world over?
Echoing Nigel Lawson, Britain's chancellor of the exchequer in the
1980's, O'Neill is unequivocal.
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