The View from Down Under
As a result of persistent current account deficits, the foreign asset position of the United States moved from net external asset holdings of 13 per cent of GDP in 1980 to net external liabilities of 21.3 per cent of GDP in 2002. If the current account deficit were to remain at 5 per cent of GDP over the next ten years, United States net external liabilities would rise to around 56 per cent of GDP in 2014.
This would represent the highest ratio of net external liabilities to GDP in United States history. Nevertheless, there are a number of advanced economies with ratios of net external liabilities to GDP higher than this: the Scandinavian countries in the mid-1990s; and Canada, New Zealand and Australia at present. In terms of their wider macroeconomic performance, these countries do not seem to have been adversely affected by these relatively large stocks of net external liabilities....
The relevance of the Australian and New Zealand experiences may be that the United States could perhaps continue to run sizeable current account deficits for many years with no obvious harmful side-effects — provided the United States fiscal deficit is significantly reduced (or eliminated). If, over time, the United States fiscal deficit was significantly reduced, that might also see a significant narrowing of the United States current account deficit — but the experiences of Australia and New Zealand caution against automatically assuming that outcome.