The U.S. current account deficit has narrowed since 2006, when it reached $807 billion, which represented 5.8% of U.S. GDP. By 2013 the deficit had fallen to $400 billion, worth 2.4% of GDP. But the IMF last October projected it would reach $484 billion in 2015, 2.6% of GDP, and would continue rising after that. Are we headed for a return to the global imbalances of the last decade?

Part of the rationale for the expected rise in the deficit is the strength of the U.S. economy. The U.S. recovery (finally) appears robust, particularly compared with those of Japan and the Eurozone. This relative strength of the U.S. economy has stimulated an appreciation of the trade-weighted exchange rate. The combination of increased expenditures and a currency appreciation will fuel a decline in net exports, although the drop will be cushioned by a decline in oil imports.

This development benefits those countries where domestic demand remains weak. In January the IMF lowered its forecasts for global growth in 2015 and 2016 to 3.5% and 3.7% based on reassessments of the prospects for China, Russia, the Eurozone and Japan (although recent reports see some improvements in Europe and Japan). The U.S. was the only major economy with better growth projections. Martin Wolf of the Financial Times points out that current account surpluses would help out these countries.

But which countries would absorb their goods and services? The emerging markets and developing economies will not be able to finance current account deficits through capital inflows if a rise in U.S. interest rates brings about capital outflows from these countries.  This leaves the U.S. as the residual deficit country. Wolf concludes “…U.S. spenders will, once again, have to pull not only their own economy but much of the rest of the world.”

There is another factor contributing to the U.S. deficits: the continuing acquisition of dollars by central banks. Joseph Gagnon of the Peterson Institute for International Economics attributes the purchases to the desire of government to maintain their own current account surpluses. Andreas Steiner of the University of Osnabrueck investigated balance of payments data and found that the demand for dollar reserves lowered the U.S. current account balance by 1-2% relative to GDP. Similarly, Stephen Cecchetti of the Brandeis International Business School and Kermit Schoenholtz of NYU’s Stern School estimate that the foreign official demand for U.S. assets results in a continuing current account deficit of 2% of GDP.

A rise in U.S. interest rates will lead to an increase in private capital inflows that could further increase the current account deficit. The impact on the U.S. economy depends in part on the composition of these capital flows. Eduardo Olaberría of the OECD has studied the impact of capital inflows, and reported that debt-based flows are more likely to be associated with increases in asset prices than equity flows.

But concerns over credit booms currently center on China, not the U.S. The increase in credit reflects governmental policy to stimulate the economy after the global financial crisis of 2007-09. It is these policies, not capital inflows, which are responsible for the increases in Chinese debt.

It is ironic that the Chinese economy is seen as a source of instability at a time when the U.S. current account deficit is rising. Financial outflows have weakened the renminbi despite an increasing trade surplus, and the Chinese currency may fall further. The U.S. external position is as much a sign of foreign weakness as it is of U.S. vigor. Moreover, the U.S. economy is not immune to global fragility. Federal Reserve officials are well aware that their optimistic projections could be thrown off by a stagnant world economy.