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ECONOMICS REPORT - Current Account Deficit - 2004-03-18

Broadcast: March 19, 2004

This is Bob Doughty with the VOA Special English Economics Report.

The United States recently reported a record deficit in its current account balance. The current account is a measure of the nation’s trade with other countries. Last year, America’s combined deficit on trade in goods, services and other economic activity rose to almost five-hundred-forty-two-thousand-million dollars. That is nearly thirteen percent more than the record current account deficit set in two-thousand-two.

A deficit is often described as a shortage. This is true for the financial situation of an individual. For example, if you spend more than your earn, you must borrow from a creditor.

However, economists see deficits differently. When money is taken away in one place, it becomes a credit someplace else. It all must balance. This does not mean that deficits are good necessarily. It just means that a deficit shows that another economic activity is increasing.

In two-thousand-three, the United States had a huge trade deficit in goods. It had a moderate trade surplus in services of about sixty-thousand-million dollars. But, the question remains, how did the United States pay for everything it bought?

The answer is that the United States paid in dollars. Other countries, then, accepted those dollars. They could then use the money to buy American goods, or they could buy American investments.

That is what has happened since the United States developed large trade deficits in the nineteen-eighties. Countries that trade with the United States have increasingly invested in it. This foreign investment is recorded in the nation’s financial account.

Last year, other countries invested five-hundred-seventy-nine-thousand-million dollars more in America than it invested in them. That investment surplus is greater than the trade deficit.

Foreign investment has become an important part of economic development in the United States. In nineteen-ninety-three, foreign money represented about nine-percent of all investment activity in America. By two-thousand, that had grown to almost twenty-five percent.

So does this mean that trade deficits are cancelled out by foreign investment? The short answer is no. The widest measure of investment flow in and out of the country is called the capital account. It shows that the United States has a deficit of three-thousand-million dollars.

This VOA Special English Economics Report was written by Mario Ritter. This is Bob Doughty.