Rebalancing also involves a global demand switch from external deficit countries to those running large current account surpluses. With lower spending and higher savings in the advanced economies, key emerging markets must take up the slack and start providing the demand needed to power the global recovery.

Rebalancing also involves a global demand switch from external deficit countries to those running large current account surpluses.

The counterargument hinges on the difference between the current account deficit and the trade deficit.

China's current account surplus and export growth have, indeed, fallen.

No country can borrow forever or at least at very high rates. But do current account constraints apply to major, financially stable countries?

The renminbi s exchange rate, then, is really a secondary factor in China s external account.

But do current account constraints apply to major, financially stable countries?

Why can t the US current account deficit remain at its 2006 value indefinitely?

To be sure, China has accumulated an enormous balance of payments surplus, which indicates that the renminbi is greatly undervalued.

Before the crisis, the IMF s best known function lending to countries with balance of payment problems was becoming irrelevant.

In addition, the lower energy import bill will cause America s trade deficit to narrow and its balance of payments position to improve.

The United States trade and current account deficits have begun to shrink relative to American and world GDP.

Thus, in order to keep the current account deficit stable, the trade deficit must shrink. And the only way for the trade deficit to shrink substantially is for net imports to fall, which requires either a relatively sharp decline in the value of the dollar, thereby raising import prices, or a depression in the US.

Thus, in order to keep the current account deficit stable, the trade deficit must shrink.

If the external balance deteriorates further, the economy will be in for a hard landing.

Canada has run current account deficits for all but three of the last 50 years the US has done the same for 30 years.

Russia is also thought to no longer need help because its economy and public finances are much improved, thanks to rising oil prices and a GDP growing at 6.5 per annum.

As the currency appreciates in real terms, exports falter and the current account deficit widens, and the government balks at devaluation.

Until recently, Russia has pursued an admirably conservative macroeconomic policy, running up huge budget and current account surpluses.

Indeed, Russia is running fiscal and current account surpluses of 2 and 17 of GDP respectively.

The smaller current account surplus in northern Europe that might result from this should itself be welcome.

This, in turn, would support fragile balance of payments positions throughout the region, potentially assisting with pervasive debt repayment problems.

The crisis spread from Greece to other deficit countries, eventually calling into question the euro s very survival.

So long as a borrowing country is stable and attractive, a major reversal due to the current account balance will not be forced by the market.

Australia has a balance of payments that is more than 7 of GDP negative, and has had persistently large current account deficits for more than 50 years.

There is a third reason why estimates of long run equilibrium with current account balance may be of little predictive value. Do Europe and Japan really want to see the US achieve an external balance?

They are likely to continue this policy, as the alternative would be a sudden setback to the competitiveness of their export sectors in the all important US market. This gives the US a longer time to address a current account deficit that is in the long run unsustainable.

Growth momentum has fizzled and, with inflation persistently high, Indian producers are struggling to compete in world markets. The current account deficit is increasing relentlessly, owing to a widening trade deficit (now at 13 of GDP), raising the danger of a balance of payments crisis.

There is a third reason why estimates of long run equilibrium with current account balance may be of little predictive value.

This gives the US a longer time to address a current account deficit that is in the long run unsustainable.

The eurozone is now running even larger ones, with swings in southern Europe augmenting Germany s longstanding surpluses.

The ensuing loss of competitiveness manifested itself in large and growing current account deficits and slowing growth.

The current account deficit is increasing relentlessly, owing to a widening trade deficit (now at 13 of GDP), raising the danger of a balance of payments crisis.

Indeed, it is this planning dialogue that does more than anything else to help stabilize the economy and restore a viable balance of payments.

But, while it is true that China s current account surpluses and America s deficits have somewhat moderated since then, have the imbalances really been corrected?

Consider China, where the saving and investment rates are near 40 , where the current account is in surplus and there is no public debt.

They have shown that the major capital inflows were not from emerging markets, but from Europe, where there was no net balance of payments surplus.

First and most importantly, these equilibrium rates are based on a theoretical model where long run current account balances tend toward zero.

Other countries, like Norway and Switzerland, are running current account surpluses that exceed 10 of their GDP, but are resisting currency revaluation.

The euro crisis is a complex mixture of banking and sovereign debt problems, as well as divergences in economic performance that have given rise to balance of payments imbalances within the eurozone.

Its budget and current account deficits are large, public debt is high, banks are bad, and foreign short term debt is high relative to reserves.

Under this scenario, any country that runs persistent, large current account balances must look forward to a hard landing and a correction in the value of its currency.

Rising food prices are an international phenomenon, and Russia s inflation is driven by the large current account surpluses and capital inflows.

The current account deficit is equal to the trade deficit plus the cost of servicing the net international asset position the net rent, interest, and dividends owed to foreigners who have invested their capital in the US.

Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalized and the US began running a current account deficit.