I recently learned something interesting: American international finance economists and American domestically oriented macroeconomists have very different – indeed, opposing – views of the likely consequences of America’s huge current-account deficit. International finance economists see a financial crisis as likely, followed by a painful and perhaps prolonged recession in the United States. Domestically oriented macroeconomists, by contrast, see a forthcoming fall in the value of the dollar not as a crisis, but as an opportunity to accelerate growth.
Domestically oriented macroeconomists look at the situation roughly like this: at some point in the future, foreign central banks will become less willing to continue buying massive amounts of dollar-denominated securities in order to prop up the greenback. When they cease their large-scale dollar-purchase programs, the value of the dollar will fall – and it will fall hard.