MarketWatch, among others, tells us today that the current account deficit fell in the third quarter to 5.1% of GDP, down from 5.5% in the second quarter. That’s unquestionable progress. However, as the article also points out in a rather anodyne fashion, “Few economists believe a current account deficit of 5% of GDP is sustainable.” In general, a current account deficit in excess of 4% will lead to currency revaluation. The dollar isn’t out of the woods yet.
But good news on another front: Bloomberg reports that foreign purchases of financial assets rose sharply in October. That’s good news after a few months in which private sector inflows into the US were missing in action. It will be interesting to read Brad Setser’s take on this (sadly, too pressed to read the Treasury International Capital report just now).