Improving Balance Sheets Forebodes Strong Growth

by: Lok Sang Ho

The US current account deficit for all of 2009 narrowed to $419.9 billion, the smallest since 2001. It equaled 2.9 percent of GDP, down from 4.9 percent in 2008.

This implies that the combined domestic deficit (increase in government indebtedness + increase in private sector indebtedness) has gone down.

Because government indebtedness had increased sharply, this necessarily implies that the balance sheets of private businesses and households have improved sharply.

The private sector is now well positioned to get back into action: hiring, investing, and spending in general.

In the months ahead, I expect notable economic growth and smaller-than-expected budget deficits because of better-than-expected economic performance.

Disclosure: No positions