Risks of a Growing Balance of Payments Deficit, Hearing Before the Subcommittee on Economic Policy of the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Seventh Congress, First Session on the Burgeoning Balance of Payments Deficit Which Nearly Doubled in the Last Few Years, From $300 Million in 1999 to an Expected $500 Billion in 2001   [open pdf - 517KB]

From the opening statement of Senator Charles E. Schumer: "Your presence today indicates the weightiness of the subject-the balance of payments deficit. In my view, this is probably the least explored and least understood economic issue in Washington and the rest of the world. In an increasingly globalized economy, no issue could be more important or ripe for study, particularly because even those who do understand it, like our witnesses today, are not sure if there is any right solution. As we all know, the U.S. balance of payments deficit is burgeoning. Over the last 21⁄2 years, it has risen from $320 billion in 1999 to $500 billion this year. A number of economists have already expressed concerns about the sustainability of our dependence on foreign investment. With the national savings rate dropping to around 4 percent in the last few years and the personal savings rate in the red, the United States was forced to fund its investment boom with foreign investment, which has generated the massive imbalance we have today. But like the Egypt of 1875, which through its profligate spending became so indebted it was forced to sell its ownership in the Suez Canal to the British, we are living beyond our means and we cannot continue to do so, at least in the opinion of many. What holds for individuals apparently holds true for the economy at large. Living beyond one's means is not sustainable in the long run and the problem is not self-correcting. Some economists thought that the problem would self-correct. Over-borrowing would become a drag on the economy, as more of the domestic GDP was allocated to foreign debt servicing. The slower economy would weaken the dollar and, as a result, the United States would become less attractive to foreign investors, but that has not happened, at least in the last little while, the reverse has. The dollar has never been stronger and now, more than ever, foreign investment is descending upon the United States." Statements, letters, and materials submitted for the record include those of the following: Robert E. Rubin, Paul A. Volcker, William Dudley, Stephen S. Roach, Robert F. Bennett.

Report Number:
S. Hrg. 107-627; Senate Hearing 107-627
Public Domain
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Government Printing Office, Congressional Hearings: http://www.gpoaccess.gov/chearings/index.html
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