More from the Author

• Case | HBS Case Collection | July 2005 (Revised August 2018)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson and Jonathan Schlefer

  Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

  Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

  Citation:

  Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised August 2018.)  View Details

  CiteView DetailsEducatorsPurchase

  Related

• Case | HBS Case Collection | July 2005 (Revised August 2018)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson and Jonathan Schlefer

  Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

  Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

  Citation:

  Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised August 2018.)  View Details

  CiteView DetailsEducatorsPurchase

  Related

• Case | HBS Case Collection | April 2017 (Revised August 2018)

  The U.S. Shale Revolution: Global Rebalancing?

  Laura Alfaro and Richard H.K. Vietor

  The American shale revolution has upended oil and gas markets for nearly a decade. Prices have risen then plunged, production has surged and then waned, LNG has boomed, and technology and productivity have improved. The U.S. energy policy, under the Obama administration, authorized a handful of gas exporters, despite pressure from domestic chemical and utility interests, and approved oil exports for the first time in 40 years. Environmental issues and questions remain unresolved. No one knows for certain what America’s energy trajectory will look like in the next decade.

  Keywords: shale oil; shale gas; LNG; energy; energy policy; drilling technology; Energy; Trade; Economics; Macroeconomics; Policy; Energy Industry; Manufacturing Industry; United States; Middle East;

  Citation:

  Alfaro, Laura, and Richard H.K. Vietor. "The U.S. Shale Revolution: Global Rebalancing?" Harvard Business School Case 717-056, April 2017. (Revised August 2018.)  View Details

  CiteView DetailsEducatorsPurchase

  Related