Playlist: Policy Points

Susan M. Collins: Shrinking U.S. current account deficit

April 6, 2012 0:01:57
Kaltura Video

Susan M. Collins is the dean of the Ford School and an economics professor with expertise in international economics.


>> The Current Account is the broadest measure of a countries interaction with the rest of the world. So, if you are running a deficit, almost importantly, that means that you are importing more goods and services than you are exporting. The Current Account also includes net income on dividends and interest payments and it's a small component that is transfers, things like foreign aid. Most recent data shows that the US Current Account Deficit is a much smaller share of the overall economy than it was as recently as 2007, and that is overall really good news. The very large, persistent US Current Account Deficit was one of the most concerning challenges for US Macro Policymakers and the number of reasons for that, the concern was that if you have a very large deficit, you've got to fund it somehow, and that essentially meant that the US was either selling off its assets or accumulating debts relative to the rest of the world, and that makes the country extremely vulnerable in the change that other countries will reduce their willingness to invest and so, that was a real problem. In fact, that did not turn out to be what caused the crisis, and in fact, as I mentioned, we are in a very different situation where the Current Account is at a very manageable size. At the same time, economists always talk about pluses and minuses. Part of the improvement has resulted from very positive increases in US exports and the challenge is whether the US can continue to increase exports to the rest of the world.