In addition to serving as CEO o Legg Mason Capital Management, Bill Miller manages a fund that has outperformed the S&P 500 for 15 consecutive years. When Mr. Miler speaks, others typically listen. In a recent interview with the Financial Times, Mr. Miller defended the sustainability of the US current account deficit, arguing that as long as it is accompanied by economic growth, it will not pose a significant problem. While large currency account deficits have historically preceded national economic crises (Brazil and Argentina, for example), the US current account deficit is unique because the USD is the world’s reserve currency. As long as foreigners continue to hold most of their foreign exchange in USD, the deficit will sustain itself. While the deficit may not directly hinder US GDP growth, it may necessitate a long term correction in exchange rates. The Financial Times reports:

The fast-expanding US current account deficit, which the IMF estimates will spiral to 6.1 per cent of GDP this year, has been behind the dollar’s 23 per cent slide against the euro since January 2001. Many economists argue the dollar needs to fall further to bring the deficit to a “sustainable level of about 3 per cent of GDP.

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