International Business Economics

INTRODUCTION
The macro economists are currently facing one of the major problems that are whether the huge and persistent U.S. current account deficits are sustainable or not. There are different thoughts about the present circumstance of worldwide imbalances. The imbalances in United States have a large current account deficit of above 5% of GDP. In simpler manner the above thoughts can be distinguished into those who think that such imbalances will start to grow in a gentle way and those who are concerned that their resolution might involve considerable disturbances to the worldwide economy, disturbances may include a quick fall in the dollar, a quick hike in U.S. interest rates, and extensive unconstructive spillovers to other economies (Blanchard O., & Giavazzi F., 2009). The purpose of the present essay is to find out whether the persistent US current account deficit is sustainable or not. And the different types of policies the government may use to improve its current account position and effects of those on the rest of the world.

The problem, from a lay man’s viewpoint, is that it is very complicated to decide which of the competing thoughts of U.S. current account sustainability are applicable. From distance these all seem to be reasonable. For instance, the “exorbitant privilege” outlook that U.S. may earn its way towards the current account sustainability as United States claims on foreigners and earns greatly when compared to the claims of foreigners on United States. Such difference in the earning would definitely loosen the budget restraint of U.S by maintaining the current account deficits to grow more as they otherwise would have been very large. (Cavallo & Tille., 2010) showcases an optimistic difference in the returns which may reduce the probability of an uncontrollable modification in the U.S. current account and the dollar. If the exorbitant privilege thought is true, then the U.S. current account will be very much

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