The Year 2030

C. Fred Bergsten is Director of the Peter G. Peterson Institute for International Economics. He was Assistant Secretary of the Treasury for International Affairs from 1977 to 1981 and Assistant for International Affairs to the National Security Council from 1969 to 1971. In the November/December 2009 issue of Foreign Affairs, Bergsten writes the following in an article entitled The Dollar and the Deficit: How Washington Can Prevent the Next Crisis:

Using the CBO data and assumptions of future growth, William Cline of the Peterson Institute has projected U.S. trade and current account deficits through 2030. The results are sobering: the U.S. trade deficit in goods and services will exceed $3 trillion, about four times as much as the previous record, from 2006, in dollar terms and about eight percent of GDP. Although such a percentage is only modestly higher than the six percent level of 2006, it is worth remembering that 2006 was the year in which foreign capital inflows peaked, bringing the financial bubble to a head and setting the final stage for the current crisis. According in Cline's study, the greatest projected change is the rise in annual payments to foreign dollar holders needed to service the United States' external debt. Although the United States is already the world's largest debtor country in dollar terms, it makes no net payments now because U.S. investments abroad earn much more than do foreign investments here.

Even if such favorable returns persist, Cline's projections show, the level of U.S. debt will climb from under $5 trillion now to more than $50 trillion, and the annual cost of servicing that debt will soar to $2.5 trillion. By 2030, the United States will be transferring seven percent of its entire annual output to the rest of the world. In order to pay for its previous profligacy, the United States will have to forgo $2.5 trillion - equal to the nation's current total annual spending on health care - of domestic consumption, investment, and government expenditures each year. At a minimum, this will lead to a long-term erosion of living standards in the United States.

These projections suggest that the United States' annual current account deficit will thus climb to almost $6 trillion by 2030, more than seven times its previous high. Such a sum would account for more than 15 percent of GDP, or two and half times the peak rate of 2006, and would be at least triple the accepted international norm for sustainable current deficits, which is four or, at most, five percent of GDP.

The administration has advanced specific proposals for a host of issues - from health care reform to climate change. What is needed is an agenda item that has the goal of achieving sustainable equilibrium in the international economic positions of the United States. We are facing a scenario in which the net international position, or net foreign debt, of the United States would exceed $50 trillion, or 140 percent of GDP - more than triple the accepted international norm of 40 percent. We are facing the erosion of living standards in the United States. We are facing Year 2030.