The current deficit is not worrisome.
It is due to a "stronger relative level of economic activity in the
United States" - he insisted in a speech he gave this month to
Vanderbilt University's Owen Business School. Foreigners want to invest
in the US more than anywhere else. The current account deficit - a mere
accounting convention - simply encapsulates this overwhelming allure.
This is somewhat disingenuous. In the last three years, most of the net
inflows of foreign capital into the spendthrift US are in the form of
debt to be repaid. This mounting indebtedness did not increase the
stock of income-producing capital. Instead, it was shortsightedly and
irresponsibly expended in an orgy of unbridled consumption.
For the first time in a long time, America's savings rate turned
negative. Americans borrowed at home and abroad to embark on a fervid
shopping spree. Even worse, the part of the deficit that was invested
rather than consumed largely went to finance the dotcom boom turned
bust. Wealth on unimaginable scale was squandered in this fraud-laced
bubble. America's much hyped productivity growth turned out to have
been similar to Europe's over the last decade.
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