Governments are running budget deficits.

Counter cyclicality does not mean running modest deficits in the good times and huge deficits in major downturns.

The US government itself has taken advantage by running vast deficits.

In the past, developing countries filled this role, running trade and fiscal deficits.

The French state budget is chronically ill managed, running deficits on par with Italy.

Second, to reduce the current account imbalances that have built up, demand has to shift from countries running deficits to countries running surpluses.

In the last 60 years, the US has underpinned global growth by running persistent current account deficits.

Indeed, only those countries that were running large current account deficits before the crisis were affected by it.

Following Keynes, they argue that running deficits will restore confidence before a recession or depression can take hold.

Third, in countries running current account deficits, consumers need to cut spending and save much more for many years.

The situation today is very different from that in 1998, when Russia was running twin fiscal and current account deficits.

Those who advocate running deficits often portray them as necessary to fix an economy in which confidence is draining away.

Central America and Mexico have been running bilateral deficits for years, with Mexico s import export ratio in 2006 at 16 1.

If some countries, say, Japan and China, insist on running huge surpluses year after year, then other countries must run deficits.

Moreover, the region had relied excessively on foreign savings to support growth, with many countries running large long term current account deficits.

Today, Germany has a balanced budget, whereas most other eurozone countries are running deficits that are higher than Germany s ten years ago.

Countries that were overspending, under saving, and running current account deficits have been forced by markets to spend less and save more.

The crisis of the euro has little to do with national governments running excessive budget deficits that was true only of Greece.

America s Three Deficits

Huge deficits reappeared.

Loving America s Deficits

So deficits grow.

Moreover, in the United States, there are rules and conventions (similar to Maastricht) that disallow or discourage states from running long term deficits.

Monetizing the fiscal deficits would then become the path of least resistance running the printing presses is much easier than politically painful deficit reduction.

(i) Surpluses or deficits

Will the United States ever face a bill for the string of massive trade deficits that it has been running for more than a decade?

A few years ago, countries like Spain and Portugal were running large current account deficits and needed capital inflows totaling roughly 10 of their GDP.

But achieving these laudable goals will be expensive, coming on top of the giant budget deficits the US is running to counter the financial crisis.

The arithmetic of global trade implies that the sum of all trade deficits equals the sum of all trade surpluses. If some countries, say, Japan and China, insist on running huge surpluses year after year, then other countries must run deficits.

The government is running budget deficits of 10 of GDP, despite having cut public sector wages, and now plans further cuts to service failed banks debt.

As time passes, deficits accumulate.

The Real Risks of Deficits

We have vast budget deficits.

Keep running, keep running!

But if it produces the threat of fiscal instability and excessive sovereign debt risk after a large shock, then the starting point was not sufficiently conservative in other words, deficits or debt levels (or both) were too high. Counter cyclicality does not mean running modest deficits in the good times and huge deficits in major downturns.

Mitt Romney and America s Four Deficits

Who Will Run the World s Deficits?

Deficits are back with a vengeance.

Cash deficits of closed peacekeeping missions

Trade flows may be driven substantially by longevity countries expecting a relatively large number of elderly in the future should be running trade surpluses now and deficits later.

As a result, the country has benefited from low inflation, small fiscal deficits, and manageable current account deficits.

Conventional macroeconomists like me look at America s current account deficit, now running at 7 of GDP, and know that such vast deficits are inevitably followed by large currency depreciations.

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