The American Enterprise Institute‘s John Makin offers this nice contribution to the debate over the sustainability of the current U.S. current-account deficit.
In summary, Makin argues that one of the reasons foreigners sell so many goods and services to Americans and then consistently refrain from buying an equivalent amount (in value terms) of goods and services from Americans is that foreigners have a high demand for “wealth-storage” services supplied by dollar-denominated assets.
The fact that global savers accommodate U.S. consumers by keeping U.S. interest rates lower than they otherwise would be and the dollar stronger than it otherwise would be is simply a manifestation of America’s comparative advantage at supplying wealth storage facilities.
In other words, there’s no real imbalance. If the services supplied by “wealth-storage facilities” were counted in international commercial accounts as “services,” then the U.S. current-account would not be in deficit.
