Echoing the GAO

From a "deficits do matter" voice inside a mainsteam financial institution ( Morgan Stanley) that echos my observation about Greenspan's report on savings rates (when the mainstream media focused on his "endorsement" of Bush's private accounts) and suggests we take a closer look at the GAO report on deficits:

Remember the “new paradigm” of 1999 and early 2000? Well, it’s back -- this time in the form of a dismissal of the significance of America’s low national saving rate and the massive current account deficit it has spawned. Globalization and its concomitant arbitrage between the providers and users of capital make the United States special, goes the argument. If America doesn’t save, it doesn’t matter...

... America’s role as a magnet of international capital also is tied to the superior productivity performance of the US economy... [but] US productivity growth faded appreciably in the second half of 2004 -- a 1.3% average annual rate (that could be revised up to 1.5%) versus 4.4% in the prior 13 quarters and the 3% post-1995 trend. While there is undoubtedly a long overdue cyclical element to this recent slowing, it may also signal the return of more sluggish productivity growth in the years ahead.