Rebalancing the US Economy in a Postcrisis World

The aim of this report is actually to investigate how the external balance of the US may progress in future decades as the current economic climate comes out from the economic downturn. We look at the problem from the domestic viewpoint of the saving and investment balance and from the external side with regards to the basic determinants of exports and imports and also the function of the real exchange rate. Making use of these 2 particular viewpoints, we spotlight (1) reasons and effects of decreased private and public saving in the united states, and (2) sensitivity of trade to variations in the real exchange rate. In this report, we also showcase the requirement of continual devaluation of the $ to boost the competitiveness of United states exports and debate that the present exchange rate is in line with a substantial decline in the size of the trade deficit…

The US has already a considerable current account deficit since the mid-1990s. For the majority of that period, the deficit has grown gradually, achieving a peak in 2006 of US$800 billion, or 6.7% of national income. There’s been popular agreement that deficits of this size could hardly be sustained; therefore there’s a persistent concern that the economic system could be proceeding in the direction of a tough landing-with an unexpected fall of the dollar and severe economic disruptions both domestically and globally…

Source: Asian Development Bank

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