Introduction: Since the 1980s, one of the most persistent challenges for the United States economy and its policymakers has been the US current account deficit. A current account is made up of four distinct categories whose combined balance results in a surplus or deficit. The four categories are: merchandise trade account, services, factor income and unilateral transfers. Each account has a surplus or deficit, depending on whether money is flowing into or out of a particular country. The U.S. trade account deficit is currently the largest contributor to the U.S. current account deficit. This deficit is made up of what U.S. citizens, businesses, and government borrow from their foreign counterparts. It seems counterintuitive that one of the world's richest developed countries would need, or even want, to borrow from its trading partners. This paper will attempt to summarize the reasons for the large U.S. current account deficit, whether it is a problem, what can be done to reduce this deficit, and how some investors are trying to mitigate the potential risk associated with a deficit. The deficit continues to grow as a proportion of GDP. It reached a record level of 5.7% of GDP in the first half of 2005, before declining to an average of 3% of GDP in 2011-2012. Although many factors contribute to the 2005 level, many blame the United States' lack of interest in reducing its budget deficit; more specifically, spending openly on the war on terrorism while proposing tax cuts has been likened to a fiscal illusion. Consider the following equations: Current account ≡ Export – Import and (S – I) + (T – G) ≡ X – M ≡ Current account Since the US government and its citizens...... middle of paper ... ..ks citedAlfaro, Laura and Rafael Di Tella. “The U.S. Current Account Deficit.” Harvard Business School, August 28, 2013. Web. “Tax Fantasyland; The American budget. The economist. April 9, 2005. Eun, Cheol and Bruce Resnick. “International financial management. Ed. 6. » Coursesmart.com. Electronic manual. Labonte, Mark. “CRS Report for Congress.” Assets.opencrs.comrpts. Congressional Research Services. The Library of Congress. December 13, 2005. Scott, Don. “Now is the time to maintain the momentum towards energy independence. » Biodieselsustainability.com Bio Diesel. November 13, 2013. Web. Tverberg, Gail. “12 reasons why globalization is a huge problem.” Ourfiniteworld.com. Our world is over. February 24, 2013. Web. Lawrence H. Summers, “The US Current Account Deficit and the Global Economy,” Per Jacobsen Lecture, October 3, 2004, p.8 Chart source: http://research.stlouisfed.org/fred2/série/BOPBCA