Current Account Deficit at 5-Year Low in ’89
The government said Tuesday that the deficit in the broadest measure of U.S. trade sank to a five-year low last year, but the $105.9-billion imbalance still pushed the country deeper into the hole as the world’s largest debtor nation.
America’s current account balance narrowed by 16% from a $126.6-billion deficit in 1988, reflecting growth in exports, higher overseas earnings of American businesses and increased spending by visiting foreign tourists, according to the Commerce Department.
The year ended on a positive note as the October-December trade deficit declined 10.2% from its third-quarter level to $20.57 billion. It was the smallest quarterly imbalance in almost six years.
But private economists were unimpressed, contending that even with the improvement, the current account deficit remained above $100 billion for the sixth consecutive year as the United States plunged further into hock to the rest of the world.
The current account, also known as the balance of payments, is the most closely watched trade statistic because it measures not only trade in merchandise but also trade in services and investments. It reflects the amount of money the United States must borrow annually from foreigners.
America began the 1980s as the world’s largest creditor nation. It ran surpluses in its current account. But as Americans bought more foreign goods, the investment cushion eroded and disappeared altogether in 1985.
America’s total debt is expected to top $1 trillion in the next few years as the current account deficit remains stuck around the $100-billion level.
Foreigners now own more in U.S. assets than Americans own overseas, a development that has triggered debate over whether the United States is losing control of its economic destiny.
President Bush, like Ronald Reagan, has insisted that the growth of foreign investment in the United States is a sign of strength, showing that America remains attractive for investments.
Many private economists fear, however, that Americans’ living standards will be lowered in future years as more and more dollars flow into foreign hands to meet interest and dividend payments on the growing debt.
“The United States is the world’s biggest debtor and that is a big problem for the country,” said Allen Sinai, chief economist of Boston Co. “Increasingly, the ravages of debt are showing up in this country.”
Sinai said the need for the Fed to keep interest rates high enough to attract foreign capital had already translated into slower growth in the United States.
David Wyss, an economist with DRI-McGraw Hill, predicted that the current account would worsen in 1990, after two years of improvement, reflecting slower growth in exports.
