Order the answer to: The 2006 Economic Report of the President directly addressed whe

Academic Help business economics Order the answer to: The 2006 Economic Report of the President directly addressed whe

business economics

Order the answer to: The 2006 Economic Report of the President directly addressed whe

Question The 2006 Economic Report of the President directly addressed whether the United States can continue to run large current account deficits and, of course, financial account surpluses. In the report, the government recognized that the current account deficits would eventually be reduced. However, it also highlighted a number of factors suggesting the deficits could continue for a long period of time. The report explains that the U.S. current account deficit needs to be placed in a global context. For the United States to continue to run a current account deficit, other countries in the world need to continue to purchase U.S. assets. In essence, they must have total savings in excess of their own investment desires. As long as there are countries in this situation, the United States could continue to run a trade deficit. In recent years, four major countries experienced circumstances that encouraged them to save by purchasing assets from abroad. Both Japan and Germany had high savings rates, but low rates of domestic investment. Slow economic growth in both countries led firms to be very cautious about making domestic investment. With limited domestic investment opportunities, savers in Japan and Germany thus placed their funds abroad. Russia has large reserves of oil and gas, and increasing energy prices in the last several years provided Russians with substantial new revenue. They decided to use this revenue to invest abroad. Finally, China had high investment rates but even higher savings rates. As a result, China as a whole invested abroad. For the United States to continue to run trade deficits in the future, these or other countries must want to continue to save more than they want to invest domestically.
Subject business economics
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