As our net external debt rises, the cost of servicing that debt increasingly will subtract from US income. Accordingly, it would be helpful to raise our domestic saving and reduce our trade deficit while maintaining an environment conducive to investment and growth. Reducing the budget deficit would release resources for private investment and reduce the future burden of repaying the public debt, although studies indicate a relatively modest effect of budget-cutting on the trade deficit. Pro-growth policies among our trade partners would also contribute to some adjustment of external imbalances. Finally, more flexible exchange rate regimes in some countries would provide greater scope for market forces to reduce our trade deficit, and would be in the interests of the countries implementing these regimes as well. Nevertheless, in the absence of a shift in market perceptions of the relative attractiveness of US and foreign assets, government policies would likely have only limited effects on the trade balance.