For years now we've heard about the dangers of U.S. debt. It's too high, we can't sustain it, etc. Now The Economist is examining the co-dependent relationship again.
AMERICA has been warned many times in recent years that its profligate spending is dangerous, for itself and for the world economy. So far, however, Americans have ignored such doom-mongering, gleefully driving their current-account and budget deficits to record levels. Now the World Bank and the International Monetary Fund (IMF) seem to be trying to stage an intervention. This week, both have come out with reports on the global financial situation—and both reports give warning that America's fiscal irresponsibility poses serious risks to the world economy.
Neither organisation issues the kind of scathing indictment that might offend its most powerful constituent. Nonetheless, both make it pointedly clear that America's copious spending is a real, and growing, problem for the rest of the world. America's 12-month current-account deficit now stands at $665.9 billion, or 5.7% of GDP. Since a negative balance in the current account must be complemented by a positive balance in the capital account, this means that foreign funds are streaming in. America is mortgaging its future to pay for current spending.
The ideas here make sense to me, but after hearing about it for years and not seeing any negative consequences, I wonder if the U.S. economy might pull out of this problem just fine.