Frankel, Jeffrey2017-08-282017-08-282009https://hdl.handle.net/10986/28002The large U.S. current account deficit over the last decade-and the corresponding surpluses in China and elsewhere-has been interpreted in two very different ways. Many mainstream economists view the phenomena as primarily the outcome of a low rate of national saving in the United States, beginning with a large budget deficit (the other half of the 'twin deficits'). In this first view, the current account deficit is unsustainable, and will eventually result in a sharp depreciation of the dollar. But this unsustainability view has been challenged by a variety of other economists, with equally impeccable credentials. This paper enumerates eight arguments that they have given as to why we need not worry about the current account deficit. The paper is skeptical of all eight, and sides with the unsustainability view. But they deserve a hearing. The eight are: 1) the siblings are not twins; 2) alleged investment boom; 3) low U.S. private savings; 4) global savings glut; 5) its a big world; 6) valuation effects pay for it; 7) intermediation rents pay for it; and 8) second Bretton woods.en-USCC BY 3.0 IGOACCOUNTINGBALANCE OF PAYMENTSBALANCE OF PAYMENTS DEFICITSBENEFICIARYBONDBOND MARKETBONDSBOOM GENERATIONBUDGET BALANCEBUDGET DEFICITBUDGET DEFICITSBUSINESS CLIMATEBUSINESS INVESTMENTCAPITAL ACCOUNTCAPITAL FLOWSCAPITAL FORMATIONCAPITAL GAINSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL MARKETCAPITAL MARKET INTEGRATIONCAPITAL MOBILITYCENTRAL BANKCENTRAL BANKSCLAIMCOMMODITIESCORPORATE GOVERNANCECOUNTRY RISKCREDIT MARKETSCREDITORCURRENCYCURRENCY CONVERTIBILITYCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT BALANCESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT IMBALANCESDEBTORDEBTOR COUNTRYDEFICITSDEPOSITSDEPRECIATIONDEVELOPING COUNTRIESDIRECT INVESTMENTDISPOSABLE INCOMEDIVIDENDSDOLLAR VALUEECONOMIC ACTIVITYECONOMIC GROWTHECONOMIC INTEGRATIONECONOMIC POLICYEMERGING MARKETSEMPLOYERENVIRONMENTAL BENEFITSEQUILIBRIUMEUROPEAN MONETARY SYSTEMEXCHANGE RATEEXCHANGE RATE VOLATILITYEXCHANGE RATESEXPENDITUREEXTERNAL ASSETSEXTERNAL POSITIONSFACE VALUEFEDERAL BUDGETFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL ASSETSFINANCIAL DEVELOPMENTFINANCIAL INSTITUTIONSFINANCIAL MARKETSFISCAL AUTHORITIESFISCAL POLICIESFISCAL POLICYFLOW OF CAPITALFOREIGN ASSETSFOREIGN CENTRAL BANKSFOREIGN COMPANIESFOREIGN CREDITORFOREIGN DEBTFOREIGN INDEBTEDNESSFOREIGN INVESTORSFOREIGN LENDERSFOREIGN RELATIONSGLOBAL CAPITALGLOBAL CAPITAL FLOWSGLOBAL CURRENT ACCOUNT IMBALANCESGLOBAL IMBALANCESGLOBAL INVESTMENTGLOBAL PORTFOLIOGLOBAL RISKGOLDGOVERNMENT SPENDINGGRADUAL DEPRECIATIONGROWTH RATESHIDDEN ASSETSHOLDINGSHOME COUNTRYHOUSEHOLD SAVINGHOUSEHOLD SAVING RATEIMPORTIMPORTSINDEBTEDNESSINFLATIONINFLATION RATESINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL CURRENCYINTERNATIONAL DEBTINTERNATIONAL DEVELOPMENTINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINTERNATIONAL INVESTMENTINTERNATIONAL MARKETINTERNATIONAL MONEYINTERNATIONAL PORTFOLIOSINTERNATIONAL RESERVEINTERNATIONAL SETTLEMENTSINVESTINGINVESTMENT BOOMINVESTMENT CLIMATEINVESTMENT INCOMEINVESTMENT OPPORTUNITIESINVESTMENT RATEINVESTMENT SLUMPJUDGMENTLIQUID ASSETLIQUIDITYLOW INTEREST RATESMANDATEMARKET INTEGRATIONMONETARY AUTHORITIESMONETARY POLICIESMONETARY POLICYMORTGAGENATIONAL DEBTNATIONAL SAVINGNATURAL RESOURCESNET DEBTOUTPUTPORTFOLIOPORTFOLIO CAPITALPORTFOLIOSPOVERTY REDUCTIONPRIVATE INVESTORSPRIVATE SAVINGPRIVATE SAVINGSPROPERTY RIGHTSRATE OF RETURNRATES OF RETURNREAL ESTATEREAL EXCHANGE RATERECESSIONRESERVERESERVE CURRENCYRESERVE HOLDINGSRESERVESRETURNRISK AVERSIONSECURITIESSECURITIES MARKETSSECURITY MARKETSEIGNORAGESHORTFALLSOCIAL SECURITYSTOCK MARKETSTOCK MARKETSSTOCKSSURPLUSSURPLUSESTAXTAX RATESTAX REVENUETRADABLE GOODSTRADE BALANCETRADE DEFICITTRADE DEFICITSTREASURYTREASURY BILLSTREASURY SECURITYVALUATIONVENTURE CAPITALISTWORLD FINANCIAL MARKETSWorking PaperWorld Bank10.1596/28002