The Twin Deficits in the Economy of the United States

2883 WordsOct 3, 200812 Pages
The Twin Deficits in the Economy of the United States The twin deficits are definitely back. People that do not know what twin deficits are? The Twin deficits are the current account deficit and the federal budget deficit. The current account deficit measures the flow of money from and to other countries and measures merchandise Trade. If you put it in short words, it means exports minus imports of goods and services. The Federal budget deficit is a government’s debt. It happens when an entity spends more money than what it has. A brief surplus of Clinton’s Administration has been replaced by the deficit of Bush’s Administration. Today, “the current account deficit is larger than it has ever been, close to 800 million dollars, which is 7%…show more content…
Therefore, the current account deficit matches the federal budget deficit. If private individuals and government have did not invest more money that save, the current account deficit would have not been this shocking. But, the whole world is not running a deficit, for the same reason as the US has a deficit in some other part of the world there are countries with large balance of surpluses. Japan, Germany, China and other nations have been financing the US deficit. Japans current surpluses amounted to “3.5% of its GDP in 2004 and Germany’s to 3.3% of its GDP” (5). A nation can finance its own deficit by selling a variety of financial assets to foreign nations. The US has been selling private equity, private debt and government debt. It is amazing that the US is now an importer of private equity securities. It is more striking that the current account deficit is the US is being financed by Central Banks of Asian countries. Economists say that the Asian Central Banks have paid over 80% of the current account deficit in 2003. In many nations dollars reserve have increased dramatically by 2004: “Dollar reserves increased by 150 billion in China and Japan each, and by 200 billion in the rest of the world” (Stuchtey 5). The Japanese government believes that the growth in exports has kept their economy afloat. The intervention to support the dollar was necessary for the exchange rate to stay at the level where it is, which will not increase the prices of products
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