Menzie Chinn submits: There was a time one could plausibly argue that importing lots of
goods and services and borrowing a lot from abroad (financing the
budget deficits that we've incurred since 2001) was a great idea. But
at the time, about two and a half years ago, I made the following
warning in a Council of Foreign Relations report [pdf]:
The United States faces a wide variety of possible
outcomes, with the most dire having a significant likelihood. One real
possibility entails the satiation of global investors' appetite for
U.S. Treasury securities, combined with an endless vista of government
budget deficits. After several years of large losses on dollar assets
due to depreciation, they then demand a substantial premium for holding
dollar-denominated assets; either the dollar must weaken so as to make
Treasury securities cheap, or yields must rise relative to those on
other assets.Complete Story »