Current Account Deficit

The dynamic interrelationship of investment portfolios of different countries affects each other’s economic processes. On the part of the current account deficit, it can be realized that one economy is starting to lose its power in terms of investment presence in its domestic or global territories. With the current condition of the United States’ current account deficit, there can be seen underlying possible concerns for the economy. Current accounts, especially in the offshore trading domain, provide the relative strength of one economy’s presence in trading.

This sums up the balance of trade in the export and import transactions.

If the US is having a deficit in its current account, then it is more likely that the country will face greater problems in terms of financial attributes. At almost $800 billion of current account deficit value in global standing (Peterson Institute, 2007), it would be very hard for the country to increase its influence in the international marketplace without sustaining greater importations to balance the deficit.

As a possible resolution for this concern, the government may start implementing trade arrangements with other key economic partners.

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Those partner countries of the US may be utilized to provide cheaper alternatives of the import demands in which lesser cost outputs of dollar reserves can be used. Since the only way to counteract the deficit is by increasing importations, then getting commodities from cheaper markets would be ideal.

In terms of domestic trade, the government can also reduce investment activities and encourage capitalists to increase the global shares of their investments.

Apparently, a current account deficit equates to a surplus in capital account. Thus, this excess values may be allocated outside of the US domestic market.

References

Peterson Institute. 2007. US Current Account Deficit. Hot Topics. Retrieved December 12, 2007 from http://www. iie. com/research/topics/hottopic. cfm? HotTopicID=9.