WASHINGTON, Jan. 8 (Xinhua) -- Multilateral efforts by all major economies are required to address global imbalances, but the first step rests on the United States to take credible measures to reduce its fiscal deficit, experts said.
When people speak of "global imbalances" in the international economic system, they are referring to the large current account deficit of the United States, and the corresponding large surpluses in a few economies, mainly in emerging Asia, said Roderigo de Rato, managing director of the International Monetary Fund.
The current account is the broadest measure of U.S. trade because it tracks not only the flow of goods and services across borders but also investment flows. The deficit is equivalent to a debt owed by the United States to the rest of the world.
In the first half of the 1990s, the U.S. current account deficits averaged 1 percent of gross domestic product (GDP). But since the mid-1990s, the deficits have increased, rising to an estimated 5.5 percent of the GDP in 2004.
For the first three quarters of 2006, the deficit totaled 655.9billion dollars, putting it on the track for a new record for a full year, according to the government data. The previous record was set in 2005 at 791.5 billion dollars.
Many economists fear that such a large deficit, which effectively reflects the gap between what the country consumes and what it produces, is unsustainable in the long run.
"The U.S. current account deficit simply reflects the excess of expenditures in the U.S. relative to income, or, equivalently, the amount by which America's moderate level of investment exceeds its very low saving rate -- both by households and the federal government," noted Ronald McKinnon, a professor of economics at Stanford University, in a recent article on The Wall Street Journal.
With spending growth outpacing income, Americans' personal savings rate, savings as a percentage of after-tax income, declined to negative 1.0 percent in November 2006, marking the 20th consecutive monthly negative rate.
A negative saving rate means that Americans are borrowing or dipping into savings to finance their consumption.
The federal government, meanwhile, has run a budget deficit every year since 2002, reversing fiscal surpluses under the Clinton administration. The budget deficit hit an all-time high of413 billion dollars in 2004.
The nonpartisan Congressional Budget Office projects that the federal budget deficit would total 1.76 trillion dollars in the next 10 years to come.
The current account deficit and other economic problems in the United States "are mostly homegrown, with roots in bad domestic policies, including enormous deficit-financed tax cuts and a corresponding dearth of public investment and private savings," a Dec. New York Times editorial said.
"Washington has to start on a harder and higher road: saving more, borrowing less, investing in infrastructure and education, and building a safety net for workers displaced by a global economy," it said.
In correcting the current account deficit, McKinnon said, the first order of business "is to reduce the structural fiscal deficit of the U.S. and possibly run with surpluses."
"The second order of business is to provide incentives -- possibly tax incentives -- for American households to increase their saving," the professor said.
The Untied States needs to promote its exports, said economist Robert J. Samuelson in an article carried by The Washington Post.
"As Americans curb their borrowing, consumer and home purchases are slowing. Something will have to replace that spending if the economy is to continue to expand. The obvious candidates are exports and investment (in factories, machinery) related to exports," he noted.
"Given today's inter-connected economy, the concerted effort of all parties, directed through a coherent set of policies, is what is needed," Rato has said.
He said that the first step to address the imbalance problem is that "credible and sustained measures must be taken towards fiscal consolidation in the United States, particularly in the medium-term."
