Washington -- The deficit in the U.S. current account, the broadest measure of U.S. transactions with the rest of the world, increased slightly in July-September to a record high, the U.S. Department of Commerce reports.

According to a December 16 Commerce press release, the third-quarter current account deficit went up to a seasonally adjusted $164.7 billion from a revised $164.4 billion in the second quarter, reflecting the continued rise in the U.S. trade deficit.

The current account deficit reached a historically high 5.6 percent of the size of total U.S. output measured as gross domestic product.

In the third quarter, U.S. imports, up $14 billion to $532.6 billion, continued to increase faster than U.S. exports, up $10 billion to $382.5 billion.

The financial account, which reflects shifts in the current account, shows that foreigners increased their net direct investments in the United States during the third quarter at a faster pace than in the second quarter.

Foreigners sharply slowed increased net purchases of U.S. Treasury securities in the third quarter and somewhat slowed increased net purchases of federally sponsored agency bonds.

Net foreign purchases of U.S. corporate bonds reached a record $84.7 billion in the third quarter.

The exchange rate of the U.S. dollar continued to slide in the third quarter, down 2 percent on a trade-weighted quarterly average basis against a group of seven major currencies.

Regarding European unhappiness with the dollar's slide in value against the euro, President Bush said in December 15 remarks that his administration would press Congress to reduce the federal government budget deficit, including long-term fiscal threats from Social Security and health care programs.

He reiterated that his administration favors a strong U.S. dollar. To make "conditions such that a strong dollar will emerge," Bush said, "we'll do everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficit, which, hopefully, will cause people to want to buy dollars."

U.S. trade partners can help resolve the other deficit that worries foreigners, the U.S. trade deficit, he said.

"That's easy to resolve; people can buy more United States products if they're worried about the trade deficit," Bush said.

Which country is the number one target for foreign investment?

For how long?

Trade deficit always goes up when a recovery is happening -- people are buying more stuff, and whether you are in Bonn or Los Angeles that means buying more foreign goods. The trade deficit doesn't worry me and even if it mattered much it will go down some with the dollar falling. The budget deficit however has a real impact.

exactly. Current account deficit is just a measure of the economy at that particular time; by itself it is rather meaningless, since it could mean any number of things.

The budget deficit, on the other hand, needs to be eliminated.

1. The account deficit is getting worse. It's not like it's improving

2. The budget deficit won't be eliminated anytime soon (at least not in any coming decades)

2. Check that out:

http://www.womensgroup.org/95NEWS.html

1. Once again, just because the current account deficit is growing, does not mean it's getting worse.

2. The budget deficit could be eliminated next year if the incomes taxes were raised by about 10 points. But, IMHO, that's not the wisest course of action, as money in the pockets of taxpayers are better used than the money in the pockets of the federal government. Other ways to reduce and/or eliminate the deficit is to cut the federal spending by about 10-15%.

3. Back in 1995, at the time the article you point to was written, the rates for the U.S. dollar were dropping too. What happened later? The dollar appreciated as the Fed increased interest rates.

Guess what Fed is doing now?

So the fact that about a decade ago 80% of worldwide capital was in US-$ and that the number right now is "only" 65% is not worriesome and that the worth of the US-$ in comparison to the Yen went down by 70% since the 70s is not worriesome either?

"But, IMHO, that's not the wisest course of action, as money in the pockets of taxpayers are better used than the money in the pockets of the federal government. "

If you leave people with their money there is no guarantee whatsoever that they will consume with this extra money. Considering that we live in a risk society and that the deconstruction of the social inequality can hit anyone anytime, anyplace, people rather save up the money than consume it.

Why should it be? There are more and more economic development going on in the world, and as the countries' economies grow, they rely more on their currencies rather than on the dollar. It's a good thing.

And let's not discuss Japan here; that country hasn't grown in 15 years, while the U.S. economy has been going on all cylinders.

America is a consumer society. The problem here is not that the people oversave, it's that they don't save enough.

Even if there was a risk of there being not enough spending to fuel the economy just the way you feel is right, it doesn't matter. The money is not the government's; it is the people's. It is up to the people to decide what they want to do with it.

I simply used the Yen because it is normally the casual comparison to the US-$. I think it is worriesome. Obviously not for other countires, but for the USA it is. You can't deny that the strong monopolistic value of the dollar was appreciated by the US government.

"People" are not smart and sure do not think as globally as they should.

1. The account deficit is getting worse. It's not like it's improving

2. The budget deficit won't be eliminated anytime soon (at least not in any coming decades)

2. Check that out:

http://www.womensgroup.org/95NEWS.html

That's not the point. You did know that foreign investment counts against current account, right?

This is the same rhetoric that gets liberals in trouble here in the U.S.
Regardless of what you think of the people's habits, it is not your place to tell them whether they're being dumb or smart by spending the money the way they want to. People out in Nebraska know better what's best for them than the government bureaucrats in DC do.

If the opposite was the case, I'm sure Germany and France wouldn't have the problems that the nanny-state polciies created for them.

The budget deficit was eliminated at the end of the Clinton administration, they had a surplus and had surpluses as far as economists project into the future.

What you are referring to is the debt, yeah that won't be down soon due to political changes in Washington in the last year (trying to not turn this into a dem vs rep thread).

One thing to keep in mind is that in America a billion means a different thing than it does in Europe. in Europe a billion is a million times a million. In America a billion is one thousand million. So yes it is big but it's not this impossible mountain when you consider the size of the economy. It is mostly about getting bipartisan agreement to both raise taxes on the rich and trim spending on unnecessary things. It won't happen soon but given that it did happen a few years ago it will probably be doable again once the reins change hands regardless of the party of the next president.

So? In what way does it make up for the account deficit? The thing is that the foreign investments will become less, but the account deficit doesn't seem to lower.

Sorry, I misunderstodd Krem's post earlier. Yes, what I meant was the debt.

Also, I know what a billion is in the USA The thing is not that it is high or not, but that it has not gotten any better in recent times. As far as I know there are four main goals in the economy. The first is employment of the people, the second is the stability of the price level, the third is the continual and appropriate growth of the economy and the fourth is an account balance.

Oh yeah, we cut the taxes....and how did it help? Wait...it didn't! You say the money is not the government's, but the people's. Yet it is the government that people expect to do many things like improving the ifra-structure, the educational system etc. The government needs money. Where do you think shall the government get its finances from if not from the people?

Also, you maintain that the lower the dollar is the better it is for the USA?

If you try to artificially balance the economy, it will come back and bite you on the ass with a vengeance. Just look what happened tot he U.S. in the 70's because of all the Keynesian policies. Does the word stagflation mean anything?

First of all what tax cuts you're talking about? Top rate is a whopping 45% in Germany. I guess it's a step in the right direction (from 51% that is), but it's hardly enough to stimulate growth. That's without considering the 16% VAT.

Second, if it was just the infra-structure and education that Germany spent money on, there'd be no real problem. But when you're literally paying a large chunk of the population not to work, yeah there is a genuine problem with the "expectations" set by some people on other people's money.

No, what I maintain is that it is irrelevant. It is pointless to try and artificially make the dollar cheaper or more expensive; such fiddling around only hurts the economy in the end. A dollar is worth what others will pay for it, it's as simple as that.

How will the balance of payments stay balanced then?

Yes, it does. Right now the stagflation is slowly coming back with the oil prices rising, , the US government increasing interest rates, and stagnant unemployment rates. The thing is what is the alternative to Keynes? Monetarism?

If there is one thing I learned in Social Science, then it is that there is no good way out of a problem. You always need to look for a lesser evil. The strategy that the European Stability and Growth Pact employs is the opposite of the Keynesian. Well, it is failing all the way right now. Out of all possible strategies, I still perceive the one of Keyes as the better.

When?