US Current Account Deficit

There has been a lot of focus on US subprime sector lately. I think the more worrying trend is the US current account deficit which is growing substantially over the years. the Americans are having great lives at the expense of the whole world, and the good times may be coming to an end soon.

Excerpts from The McKinsey Quarterly...

At $857 billion and still growing

• The US current-account deficit could continue to grow for at least five years.
• A major depreciation of the dollar could eliminate the deficit during that period, but in fact, such an adjustment would probably be gradual.
• At any pace, the dollar’s depreciation would trigger significant changes in global trade and savings.
• Governments, business leaders, and investors should prepare for the potential effects on operations and investment priorities.

Two views of the future

• Continued growth of the US current-account deficit - the deficit will balloon to $1.6 trillion... The US is likely, over the next 5 years, to retain some unique advantages that help service a large foreign debt. Most obviously, it is denominated in the country's own currency, the dollar, eliminating the risk of ballooning payments resulting from currency swings... United States has historically earned higher returns on its foreign assets than it has paid to overseas investors. One consequence is that the US net foreign debt today is significantly smaller than the sum of past current-account deficits. If this pattern continues, interest payments on the large external debt resulting from an even larger current-account deficit would be relatively low, at less than 1% of GDP.
  
• Elimination of US current-account deficit - ... 30% depreciation of the dollar from its January 2007 levels would fully balance the US current account by 2012. A smaller decline - of 20 to 25 percent from January 2007 levels - would reduce the deficit to roughly 2 to 3 percent of GDP, respectively, which many economists feel is sustainable.
  

The authors predict that the adjustment is more likely to be gradual than abrupt, i.e. something between the two extreme scenario.

Read more here and start moving your $$$ away from dollars or currencies heavily linked to dollars - Malaysian ringgit?