The US Current Account Deficit

This morning the BEA released its estimate of the US current account balance during the second quarter of 2004. The second quarter deficit was $166bn, meaning that the US borrowed a net $166bn from the rest of the world during those three months. This was done as a mixture of some explicit borrowing (e.g. selling bonds) along with some selling of US domestic assets (e.g. stocks, real estate, direct investment) to foreigners.

The following chart shows the quarterly current account balance for the US since 1995.

Running a current account deficit is not always a bad thing, though I explained in this post why I think that in this case it might be bad for the US. Also, it’s quite possible that current account deficits of this size are sustainable for the US for quite some time, though in other posts I’ve put forward some of the arguments to the contrary. Regardless, current account deficits of this magnitude are worth our attention and some careful thought.