The American Way of Debt

After almost 15 years of unprecedented growth - interrupted only by a brief slowdown in 2000-2001 - the United States has accumulated a huge stock of foreign liabilities, equivalent to 25% of its GDP. With the current account deficit now exceeding 5% of GDP, US foreign debt is rising fast. But no country can accumulate debt forever - and what cannot last sooner or later must end.

In early 1985, when the US current account deficit reached $120 billion, about a third of today's level at current prices, the rest of the world stopped financing it. The outcome was a sudden fall in the value of the dollar, which depreciated by 50% against the Deutschemark. Europe should not welcome a sequel.

Indeed, the world itself cannot afford the disappearance of the US current account deficit - at least not quickly. Take away US imports and the timid growth Europe has seen in the past year would immediately disappear.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.


By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.