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How bad is the trade gap crisis?

*Reuters, March 14, 2006

U.S. current account gap balloons in 4th quarter

“The U.S. current account deficit widened more than expected in the fourth quarter to a record $224.9 billion as the goods trade gap ballooned, pushing the current account gap to a record $804.9 billion in 2005, government data showed on Tuesday.

The quarterly shortfall was much larger than Wall Street forecasts for a deficit of $217.7 billion. The Commerce Department revised down the current account deficit in the third quarter to $185.4 billion, from the previously reported $195.8 billion.

The current account, the broadest measure of U.S. trade with the rest of the world, includes both trade in goods and services and investment flows.

The deficit widened $136.9 billion from 2004 to $804.9 billion, representing 6.4 percent of gross domestic product, up from 5.7 percent in 2004, the Commerce Department said.

The ballooning current account deficit has been attributed to high U.S. consumer spending and a low saving rate. Some economists believe it leaves the United States vulnerable to the changing appetites of foreign investors and may be unsustainable in the long run.”

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