Current Account - U.S. Account Deficits

U.S. Account Deficits

Since 1989, the current account deficit of the US has been increasingly large, reaching close to 7% of the GDP in 2006. In 2011, it was the highest deficit in the world. New evidences, however, suggest that the U.S. current account deficits are being mitigated by positive valuation effects. That is, the U.S. assets overseas are gaining in value relative to the domestic assets held by foreign investors. The U.S. net foreign assets therefore is not deteriorating one to one with the current account deficits. The most recent experience has reversed this positive valuation effect, however, with the US net foreign asset position deteriorating by more than two trillion dollars in 2008. This was due primarily to the relative under-performance of domestic ownership of foreign assets (largely foreign equities) to foreign ownership of domestic assets (largely US treasuries and bonds).