The U.S. trade deficit receded, somewhat surprisingly, in May from a record in April.
In the blogosphere, I am always intrigued by what Brad Setser has to say on global macro issues. He's got an interesting post today arguing that the trade deficit has not peaked, despite this latest dip. I think he's on safe ground there--the trade deficit has been increasing at a pretty rapid annual clip for about 6 years. But Brad tends to be more alarmist in his rhetoric than I would be. My views are closer to what James Hamilton wrote recently, after doing a hypothetical calculation of what the current account deficit would have been if personal saving had not gone down, oil imports had not gone up, and nothing else had changed since 1999. His calculations suggest that the current account deficit would be about the same as it was in 1998.
I think the personal saving rate in the United States is low--in large part--simply because it can be. We are a country that doesn't put up too many formal or informal barriers to consumption. And interest rates remain low while the dollar remains surprisingly strong. Eventually, those key macro prices will move against consumption, as foreign investors become sated with their holdings of US-based assets, and domestic savings will rise. I will be interested to see how long it takes for that day to arrive.
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