FIGURE 1 The savings gap. SOURCE: Survey of Current usiness, U.S. Department of Commerce.

almost ceased investing more than depreciation. Dependence on foreign capital could again be a problem if in the future new investment increases and the domestic saving rate does not follow. The deficits have been financed by “hot money” flows and government intervention. In addition, U.S. investors have invested large sums in foreign equities and bonds, so that the total external financing needs of the United States were as large as $200 billion in 1993. Such methods of financing are probably not sustainable for such large sums (International Bank Credit Analyst, 1994).5


This is composed of the current account imbalance (approximately $109 billion in 1993) and gross portfolio outflows of the order of $80 billion.

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