<p>This study explores the dynamic interactions among the United States’ budget deficit, current account balance, capacity utilization, and long-term unemployment, with a focus on asymmetries across the business cycle. Using quarterly data from 1948 to 2023 and local projection methods, the findings offer limited support for the conventional twin deficits hypothesis. Instead, evidence suggests that during recessions, rising budget deficits are linked to improvements in the current account, aligning with Ricardian equivalence and driven by reduced import demand. Fiscal improvements yield lagged gains in external balance, while external balance gains often coincide with worsening fiscal positions, reflecting counter-cyclical policy. Fiscal expansions are found to boost capacity utilization and reduce long-term unemployment in downturns, suggesting strong government spending multipliers. In contrast, external balance improvements are associated with lower capacity utilization and higher unemployment, particularly during recessions, challenging views that blame trade deficits for job losses. The study also reveals that external balance responses to capacity utilization are state-dependent—positive in recessions but negative in expansions. These results underscore the importance of accounting for business cycle phases and labor market dynamics in evaluating fiscal and external balance interactions, offering a more nuanced perspective on the twin deficits debate.</p>