« Twin deficits » : The American economy living more than ever on credit.
(Les Echos 15, march 2004)
expression “twin deficits”, coined during the Reagan administration, two decades
ago, is coming back full swing. The American current balance of payments
deficit, between the
These are record breaking figures. The first one shows that the number one economy in the world needs more than ever the savings of the rest of the world to finance its purchases abroad. The second one shows that the federal government heavily taps private savings to finance its expenses. The country as a whole, as well as its principal economic agent, both live on credit ; a situation that is likely to go on for quite a while and to weigh once again on the value of the dollar this year.
strong decrease in the value of the dollar slowed down the rise of the current
balance of payments deficit. But not enough to avoid breaking a new record: the
financing needs of the
flows illustrate this phenomenon : last year 856
billion dollars entered the
Unlike the budget deficit that should sooner or later translate into a tax rise and a rise in interest rates, the financing of the current balance of payment deficit is more a problem for the rest of the world (excessive use of its saving capacity) than for the US. “It is probable that the current major financial imbalances will be corrected without disturbing much the economy nor the financial markets”, Alan Greenspan, the head of the US federal reserve board, said recently. Most of the deficit is explained by the trade of merchandises imbalance : the commercial deficit reached last year 490 billion dollars, compared to 418 billions the year before.