As opposed to
other, smaller countries, America's deficits have far reaching
consequences and constitute global, rather than domestic, imbalances.
The more integrated in the global marketplace a country is - the
harsher the impact of American profligacy on its economy.
In a paper dated October 2001 and titled "The International Dollar
Standard and Sustainability of the US Current Account Deficit", the
author, Ronald McKinnon of Stanford University, concluded:
"Because the world is on a dollar standard, the United States is unique
in having a virtually unlimited international line of credit which is
largely denominated in its own currency, i.e., dollars. In contrast,
foreign debtor countries must learn to live with currency mismatches
where their banks' and other corporate international liabilities are
dollar denominated but their assets are denominated in the domestic
currency. As these mismatches cumulate, any foreign country is
ultimately forced to repay its debts in order to avoid a run on its
currency. But however precarious and over-leveraged the financing of
individual American borrowers-including American banks, which
intermediate such borrowing internationally-might be, they are
invulnerable to dollar devaluation.
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