America's worsening current account deficit is worrying global financial markets. The US current account deficit reached record levels causing renewed fear of flight from the dollar with wrenching consequences for the US economic prosperity.

In economic parlance, there is nothing wrong with a country running a current account deficit as the global economy integrates more closely today than ever. According to the Bureau of Economic Analysis (BEA), an agency of the US Department of Commerce, the current account deficit (i.e., measure of the US balance of trade in goods, services, and payments to the rest of the world) as on March 2006 has reached an all-time high of $900 bn. Economists say from a global perspective, this is indeed very large even for an economy of the size of the US.

During the 1980s, the US was a net creditor to the tune of $360 bn towards the rest of the world, whereas at the end of 2004, it owed foreigners $2.5 tn. Since then the US economy is witnessing a steady string of current account deficit and the world now holds an extraordinary amount of financial claims against the US. The US was in a slump and investment was low in 1990; the economy later recovered from 1991 onwards with the dotcom investment boom. However, the investment boom coincided with a prolonged investment slump in Japan along with the Asian financial crisis in 1997. These crises almost crushed the global investors and limited their option in the global market. The only hope for their endurance was investing in the US, a fast-paced and glittering economy by then. The investors and the countries all over the globe have begun pooling their investments into the US market.

Mesmerized with the glittering American economy, the world has even started encouraging the US' unquenchable thirst for demand by giving away hefty credits. As excess of anything is harmful, inevitable capital flows into the country have aired the Americans' extra desires. With this, the US started spending more than what it earned that further dragged them down into negative saving. This public dissaving forced the US to borrow for its imports. In the year 2004, it nearly spent $4.5 tn more than what it earned for no cost. This is well supported by the reports of BEA, which indicate that the US had nearly $370 bn of net foreign assets last year (the difference between foreign assets owned abroad and the local assets owned by the foreigners.) Overall, the growing trend of large public dissaving has brought with it a series of growing fiscal deficits due to lower tax rates and increasing government spending, especially on the Iraq war.

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