Stop worrying and love the deficit.

In the past year the United States has run up a current-account deficit of more than $500 billion. Alan Greenspan, the Chairman of the Federal Reserve argues that the pool of savings on offer in today's global capital markets is deeper and more liquid than ever as a result of the spread of globalization. The markets continue to furnish America with the money it needs without demanding higher yields in return. In a recent paper, Michael Dooley, of the University of California at Santa Cruz, and David Folkerts-Landau and Peter Garber, of Deutsche Bank, come to the same sanguine conclusion from opposite premises: the deficit is manageable not because today's world is unique but because it replicates the post-war Bretton Woods era. Under Bretton Woods, the Europeans, as they regained their exporting strength, amassed ever greater dollar claims on America. Similarly, under today's "revived" Bretton Woods system, the East Asians hoard their export earnings in low-yielding dollar assets, such as Treasury bills. The inflow of Asian capital keeps American interest rates low and demand high. Most of the discomfort caused by America's deficit will be felt neither in Asia nor in America but in Europe. European investors may be growing less willing to underwrite American borrowing for miserable returns.