Feb. 22 (Bloomberg) -- To read the annual Economic Report of the President, one would think the whopping U.S. current- account deficit is no more than a minor bookkeeping entry of little importance to the future of the U.S. economy.

Yes, in the fourth quarter of 2005 the current-account deficit jumped to 7 percent of gross domestic product because of a surge in oil imports, though it came down a bit last year, says the 2007 report released by the president's Council of Economic Advisers on Feb. 12.

And what did that mean? Apparently not very much.

``Current-account deficits mean that domestic investment continues to exceed domestic saving, with foreigners financing the gap between the two,'' the report explains.

Harvard University economist Kenneth Rogoff, who is also a former chief economist of the International Monetary Fund, says he believes the current-account deficit is worth a good deal more comment than that. For one thing, it could lead to a plunge in the dollar, he warned recently.

``Many people have been asking why the dollar hasn't crashed yet,'' Rogoff said in a commentary posted Feb. 7 on a Web site of the U.K. newspaper, the Guardian.

``Will the United States ever face a bill for the string of massive trade deficits that it has been running for more than a decade? Including interest payments on past deficits, the tab for 2006 alone was over $800 billion dollars -- roughly 6.5 percent of U.S. gross national product,'' he said.

Dollar's Value

The need to finance the deficit means that ``U.S. borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world, including China, Japan, Germany and the OPEC states,'' Rogoff said.

According to the Federal Reserve's inflation-adjusted index of the dollar's value, compared to a broad trade weighted group of currencies, the U.S. currency has declined about 13 percent from a peak in early 2002. However, that slow depreciation hasn't had nearly enough impact on the price of exports to this country or to the price of U.S. goods and services sold abroad to reduce U.S. trade deficits.

The Commerce Department reported on Feb. 13 that the 2006 trade deficit was $763.6 billion, $46.9 billion higher than in 2005.

Details of the 2006 current-account deficit -- which includes the balance on goods and services plus more than $80 billion in remittances sent home by immigrants working in the U.S. and a growing deficit on net income flows -- will be released on March 13.

Negative Saving

As the Economic Report of the President says, the current- account deficit, in national income accounting terms, is also equal to the inadequacy of U.S. saving to finance investment in this country.

Last year, personal saving by Americans out of their disposable income was negative. That is, they spent about 1 percent more than their after-tax income. The federal government also ``dissaved'' by running a large budget deficit. In contrast, the business sector, which is normally a net borrower, was a net saver.

As Rogoff put it in his commentary, ``America's government and consumers have been engaged in a never-ending consumption binge.''

``Overall, after almost 25 years of stunning prosperity, punctuated by only two mild recessions, most Americans feel pretty confident about their economic situation,'' he said. ``So it is not surprising that private consumption continues to hold up even as U.S. economic growth has shifted into lower gear.

Parking Money

``People have enjoyed such huge capital gains over the past decade that most feel like gamblers on a long winning streak. By now, they see themselves as playing with the house's (or their houses') money,'' Rogoff said.

``It is less easy to rationalize why the U.S. government is continuing to run budget deficits despite a cyclical boom,'' he added.

Rogoff said surplus countries are willing to keep pouring money into U.S. coffers because they aren't able to use all their own savings. ``The net result is that money is being parked temporarily in low-yield investments in the U.S., although this cannot be the long-run trend.''

Nevertheless, the status-quo might last for some time -- at least as long as world economic growth remains strong and there are no major recessions or financial crises, he said.

Under those circumstances, the dollar could decline very slowly. On the other hand, ``it is not hard to imagine scenarios in which the dollar collapses,'' Rogoff said. ``Nuclear terrorism, a slowdown in China, or a sharp escalation of violence in the Middle East could all blow the lid off the current economic dynamic.''

Ending the Binge

Plenty of economists predicted several years ago that rising current-account deficits wouldn't and couldn't continue. Yet they have, and that fact, not unreasonably, has made most economists extremely wary about predicting when the U.S. current-account deficit will begin to shrink or what that would mean for the U.S. and the world economies.

Still the large current-account deficit represents such a enormous imbalance that at some point it must stabilize and probably begin to reverse itself. At that point, consumption, investment and the federal budget deficit, in some combination, will be affected. In other words, the 25-year binge will end.

Yes, one would think that prospect would have been worth more than a couple of paragraphs in the Economic Report of the President.

(John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net.

Last Updated: February 22, 2007 00:13 EST