From the Bureau of Economic Analysis
“The U.S. current-account deficit–the combined balances on trade in
goods and services, income, and net unilateral current transfers–increased to $195.1 billion in the first quarter of 2005 (preliminary) from $188.4 billion (revised) in the fourth quarter of 2004. The increase was more than accounted for by increases in the deficit on goods and in net outflows for unilateral current transfers. These increases were partly offset by increases in the surplus on services and in the surplus on income.”
Why this is important.
The US currently purchases more than it produces. To make-up the difference, the US must find some type of financing. This is one of the reasons Asian countries hold about 1.1 trillion in US Government debt. We buy some of their goods on credit.
As the total amount of debt increases, the chance of defaulting on debt increases. Creditors will start to demand a higher interest rate to compensate them for this increased risk of default. This will translate into higher interest rates for the US domestic economy.
