America’s External Sustainability Is at Risk
Despite running a current-account deficit for decades, America's investment income has remained positive, meaning that debt-servicing was never a problem for the US government. But, amid geopolitical tensions and monetary tightening, America’s external sustainability is hardly a foregone conclusion.
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BEIJING – In 2004, everyone started talking about global imbalances. With America’s current-account deficit at an alarming 5.3% of GDP, it was feared that America’s net foreign-debt-to-GDP ratio would climb to the point that foreign investors would demand a higher risk premium on dollar-denominated assets. The specter of a “sudden stop,” a dollar crash, and an international payment crisis seemed to be stalking the global economy.