[FR] A look at the US current account balance

The issue is back in the news: the US current account deficit has reached $500 billion per year, approximately 5% of a gross domestic product of around $10 trillion. The net debt of the United States to the rest of the world reached $2.2 trillion in 2000, and at the current rate it is expected to double over the next five years. In net terms, the United States now attracts more foreign capital than all developing countries combined. More than half of the US money supply is now held by non-residents.

This situation is not likely to last. There will come a time when foreign financiers will be reluctant to continue investing in the United States. The United States will then either have to raise interest rates to make its financial assets more attractive, accepting the negative effects on economic activity, or allow the dollar to slide as financiers divest themselves of their US assets. The second option is what we are seeing today: the euro began to rise against the US currency in February 2002 and has now (June 2003) risen above its initial parity, which was $1.17 when it was launched.