The Red Cape Girl

Twin deficits, a growing budget deficit along with a growing current

account deficit began in 2002. In effect, the United States is borrowing

from foreigners in exchange for foreign imports. Some economists like to

present this as a fairly benign problem. For instance, Cooper (2005)

states that our deficits are just a drop in the bucket compared to the

magnitude of money in the larger world financial markets. Therefore, he

concludes that our foreign investors will continue to finance our budget

deficit indefinitely. Yet, others explain America's current-account

deficit as the inevitable consequence of a savings glut in the rest of the

world and believe that conditions in the United States don't have too much

to do with foreign lending (The Economist: Danger time for America, 2006).

However, for a number of reasons, the United States is responsible for the

twin deficits phenomenon which is a very dangerous situation with

potentially devastating consequences.

Many economists dispute the savings glut theory as the reason for the

dramatic increase in foreign lending to the U.S. and believe that the party

won't last forever. United States' policies are in large part directly

accountable for the twin deficit and the pursuit of foreign money....

Twin deficits, a growing budget deficit along with a growing current

account deficit began in 2002. In effect, the United States is borrowing

from foreigners in exchange for foreign imports. Some economists like to

present this as a fairly benign problem. For instance, Cooper (2005)

states that our deficits are just a drop in the bucket compared to the

magnitude of money in the larger world financial markets. Therefore, he

concludes that our foreign investors will continue to finance our budget

deficit indefinitely. Yet, others explain America's current-account

deficit as the inevitable consequence of a savings glut in the rest of the

world and believe that conditions in the United States don't