More from the Author

• Case | HBS Case Collection | July 2005 (Revised September 2020)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, 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: world economy; Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

  Citation:

  Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised September 2020.)  View Details

  CiteView DetailsEducatorsPurchase

  Related

• Case | HBS Case Collection | April 2015 (Revised September 2020)

  Korea

  Forest Reinhardt, Sophus A. Reinert, Dawn H. Lau, Jonathan Schlefer, Keith Chi-ho Wong and Mayuka Yamazaki

  South Korea's economic success and its transition from authoritarianism to democracy teach important lessons in national strategy and political economy. Now, though, its famous chaebols may need reform, the population is aging, and relations with the North are as tense as ever. What should the country's leaders do?

  Keywords: Economics; Governance; Government and Politics; Leadership; Globalization; Demographics; History; Asia; South Korea;

  Citation:

  Reinhardt, Forest, Sophus A. Reinert, Dawn H. Lau, Jonathan Schlefer, Keith Chi-ho Wong, and Mayuka Yamazaki. "Korea." Harvard Business School Case 715-047, April 2015. (Revised September 2020.)  View Details

  CiteView DetailsEducatorsPurchase

  Related

• Case | HBS Case Collection | July 2020

  The Shuanghui-Smithfield Acquisition (A)

  Dante Roscini and Stacy Tan

  Keywords: China; United States;

  Citation:

  Roscini, Dante, and Stacy Tan. "The Shuanghui-Smithfield Acquisition (A)." Harvard Business School Case 720-042, July 2020.  View Details

  CiteView DetailsEducatorsPurchase

  Related