The U.S. economy and the economies of the rest of the world intersect through international transactions. These have received more attention in the Brookings Papers, although again largely with a U.S. focus. I will address this intersection with respect to the large global imbalances that exist today, although I will deviate from the usual practice here by adopting a rest-of-the-world rather than a U.S. perspective.
In this brief paper I want to cast doubt on two related propositions that are widely accepted as truths: that Americans save too little, and that the U.S. current account deficit is unsustainably large, risking a disorderly adjustment that would be damaging to the world economy in the relatively near (but usually unspecified) future. These remarks should not be treated as new truths, but as plausible alternative hypotheses about how the world works these days, how we reached our current circumstances, and what the future may bring.