Whether these gains ultimately prove permanent or transitory remains uncertain, but it is certain that substantial inflows of private foreign capital have encouraged them.
Capital inflows are the necessary counterpart to our current-account deficit.
Moreover, half the increase in investment appears as the acquisition of equipment and software. A country with a current-account deficit is necessarily investing more than it is saving. Inflows of foreign capital equal the difference. Changes in domestic savings, domestic investment, or foreign capital flows initiate adjustments in interest rates and exchange rates that maintain this equilibrium. From such a perspective, the U.S. current-account deficit is not the economic bane that many portray it to be.