IB 403 01.28.09

IB 403 01.28.09 - 01.28.08 U.S. Current Account Deficit...

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01.28.08 U.S. Current Account Deficit because… Low U.S. Savings (national savings = private savings + public savings) -Public Savings is budget deficit (Govt. spends more than charges taxpayers) -Private Savings is down -S<I = X < M = Current Account Deficit Global Savings Glut: All other countries are saving more than necessary because (Exhibit 10 pg 31). Other countries’ have large CA surpluses. Strength of the U.S. economy means more purchasing power which means more imports U.S. Dollar overvalued, increases purchasing power which means more imports. Overvaluation of $ v/s Chinese Yuan. Chinese has been accused of Neo-mercantilist (Chinese govt. is holding down their currency by design) which means the U.S. $ is overvalued. SOLUTIONS: -To close gap of the CA balance as a % of GDP, the U.S. $ needs to drop 30%. -Increase Savings -International Solution: Countries with CA surpluses should decrease their CA -International Solution: Increasing Consumption [(Ex) China]: GDP =
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IB 403 01.28.09 - 01.28.08 U.S. Current Account Deficit...

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