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PI: The Long-Term International Economic Position of the United States

Author: C. Fred Bergsten
May 6, 2009

This news release argues for the urgency of a US budget policy that addresses the problem of rising US net foreign debt.

Excerpt: In the absence of long-term fiscal consolidation, the US current account deficit over the next 10 to 20 years is likely to soar to several trillion dollars annually and well into double digits as a share of the economy. As a result, the net international investment position (NIIP) of the United States (our "net foreign debt") could rise beyond $50 trillion and well over 100 percent of GDP by 2030.

These numbers range far beyond the recent highs of $700 billion and 6 percent of GDP for the annual deficit and $5 trillion and 30 percent of GDP for the net foreign debt. They are well above the widely accepted "danger thresholds" of 3-5 and 40 percent of GDP, respectively, when external adjustment inevitably begins to take place. Hence it is highly unlikely that they can be financed without some combination of a substantial decline in the exchange rate of the dollar, substantial increases in US interest rates, and a decline in US economic growth. The one policy instrument that can effectively address this problem is US budget policy. Hence we must regain fiscal balance as soon as possible or else its continued likely erosion will be a chief driver of these unsustainable changes in our international economic and financial position.

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