A few years ago I wrote in Euromoney that a country whose currency was in demand as global capital could run a relatively high current account deficit without suffering a currency collapse. That country was the US and the currency was the dollar.
It is tempting to view the world’s imbalances as the result of a new economic order, whereby the rich economies become shopping malls filled with old age pensioners and the emerging economies produce everything for the malls and invest their economic gains there. Thus, the US becomes the world’s consumer and Japan and China are the world’s producers. And everything is priced and paid for with dollars that can be printed at will by the Federal Reserve. So the world economy moves forward seamlessly in a new long-term sustainable economic paradigm.
But does it? If you look...
