Dark Material Theory

DARK MATTER. Hausmann- Sturzenegger.

U.S. AND GLOBAL IMBALANCES: CAN DARK MATTER nix A BIG BANG?

Ricardo Hausmann Kennedy School of G all overnment and concentrate on for International Development,, Harvard University Federico Sturzenegger Kennedy School of Government, Harvard University and Universidad Torcuato Di Tella November 13, 2005

Over the last couple of eld the bludgeoning of the US genuine account deficit, currently ticking at over 700 billion dollars a year in 2005 alone, has guide to significant concerns about the future of the US and the possibility of a major global crisis. It comes after 27 years of unplowed deficits which have totaled over 5 trillion dollars. in one case the massive financing required to keep on paying(a) for such a widening gap dries up, perhaps because foreigners grow satiated of owning such a large and rapidly increase amount of American debt, there testament be an miserable adjustment in the world economy. The dollar leave alone collapse, triggering a stampede away from American debt, interest rates will shoot up and a sharp global quoin will ensue. Martin Wolf calls this situation an unsustainable black hole and points that The

U.S. is promptly on the comfortable path to ruin.



Maurice Obstfeld and Ken remunerationh Rogoff (2005) remark that both sober policymaker or financial market analyst ought to look the US current account deficit as a sword of Damocles hanging over the global economy, or more dramatically, as stated by Nouriel Roubini and Brad Setser (2005) The current account deficit will continue to grow on the back of higher and higher payments on U.S. foreign debt even so if the trade deficit stabilizes. That is why sustained trade deficits will set off the kind of explosive debt dynamics that conk out to financial crises. Figure 1 highlights the large and growing each year and cumulative current account deficit of the US over the last 25 years which has made the US the largest net debtor in the world.

DARK MATTER. Hausmann- Sturzenegger.

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