Newspaper article The Christian Science Monitor

Is US Budget Deficit Losing Its Evil Twin?

Newspaper article The Christian Science Monitor

Is US Budget Deficit Losing Its Evil Twin?

Article excerpt

IS the United States the world's largest debtor nation?

Nope. United States-owned net assets abroad are probably about equal to the assets owned by foreigners in the US, says David Rolley, a DRI/McGraw-Hill economist.

Was the Gulf war profitable for the US?

Yes, at least from an international payments standpoint. Payments made by Japan, Germany, Saudia Arabia, Kuwait, and the United Arab Emirates could improve the US balance of payments by $25 billion this year, says Lawrence Veit, an economist with Brown Brothers Harriman, a New York investment bank.

For years, the deficit in the US current account, which measures the country's performance not only in merchandise trade but also in investments and services, was regarded as a twin evil with the budget deficit. Is that trade deficit still so bad?

Nah. "It is a completely manageable deficit," says Mr. Rolley. "We should have no problem financing it."

He's forecasting a current-account deficit this year in the $40 billion to $50 billion range. Mr. Veit says $50 billion.

Another economist, Lawrence Kudlow of Bear, Stearns & Co., predicts only $30 billion, about 1 percent of the nation's total output of goods and services.

These numbers are well down from the $99.3 billion deficit in 1990, reported earlier this week by the Commerce Department. They are also more optimistic than the consensus of 50 economists from several countries compiled by Globescope Publications Inc. in Glen Carbon, Ill. Their average forecast puts the deficit this year at $87 billion and $79 billion next year.

Several factors are working in favor of an improved US trade balance:

1. The price of oil imports should be lower this year than last year. Rolley assumes $17 a barrel in 1991; Mr. Kudlow $18. The average last year was about $24.5. That could reduce the oil import bill by $10 billion to $12 billion.

2. With a recession in the US, the balance of trade in goods should improve as Americans are more reluctant to buy imported cars, clothes, home furnishings and so on. Veit speaks of a $20 billion reduction in the merchandise trade deficit.

3. US exports should continue to grow, since the economies in such major markets as Japan and Continental Europe continue to expand, though at a slower pace than in 1990. …

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