"If something is unsustainable, it will stop." This phrase, coined long ago by Herb Stein, an economic adviser to Richard Nixon, has become a staple of the debate on America's current-account deficit. Officials at the Federal Reserve began to fret about America's "unsustainable" imbalances in 1997, when the deficit was less than 3% of GDP. There was much hand-wringing in 2003 when the deficit passed 5% of GDP, a widely accepted indicator of things going seriously awry. Today, the deficit stands at more than $700 billion, well over 6% of GDP, and is set to rise further. The world is still going round. Is it time to stop worrying about the sustaina-bility of America's foreign borrowing? High time, argues a growing band of optimists, most of them American. They offer a variety of reasons. First, they believe that the current-account imbalance is a sign of American strength not weakness: it is caused by foreigners rushing in to share in the proceeds of the country's highly productive and efficient economy. Second, they dismiss the current-account deficit as insignificant in relation to America's total wealth. Who cares about borrowing an annual $700 billion from abroad when American households are worth more than $30 trillion?
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