Dollar diversification: threat to the U.S.?(The Economy)

ABA Banking Journal, September, 2006 by Moody, Richard F.

FOR SOME TIME, ANALYSTS HAVE been warning of potential dire consequences if the U.S. does not address its gaping current account deficit. Thus far, foreigners have been willing to finance the deficit by accumulating large quantities of U.S. government and corporate securities. Having accumulated such vast quantities, foreigners may, at some point, lose their appetite--particularly for U.S. government debt. This could send the U.S. dollar significantly lower and send yields on U.S. Treasury securities sharply higher, causing U.S. economic growth to stagnate. Fears of this doomsday scenario have been compounded in recent months as foreign central banks, including those in Sweden, Russia, and Qatar have publicly discussed their intent to diversify their foreign exchange...

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