I used the WEO database Oct-08 to extract information of the current account of the United States and other important countries. One can easily see how the United States has been financed mainly by China, Japan and other Asian countries since 1990. I have some questions in my head. First, is it possible that a country can live forever with a current account deficit?. Second, what will happen if this situation continues?. My teacher of International Economics told me that in an economy of flexible exchange rates and free flow of capitals a current account deficit is compensated by capital flows.
I always thought that USA was one of the best places to invest money, and this is not only by its zero exchange rate risk but also by its financial system soundness. But now the present crisis makes me doubt about this believe. In this difficult moment funds in this difficult moment bought treasury bonds in USA because nowhere could they find a safe place to invest. For example, all commodities, that were used as reserve value after technological burst, have been going down with the present-day crisis. I think when the water makes calm, investors will have serious problems to evaluate where to put their money. The United States must work hard to improve its macroeconomic indicators.
I always thought that USA was one of the best places to invest money, and this is not only by its zero exchange rate risk but also by its financial system soundness. But now the present crisis makes me doubt about this believe. In this difficult moment funds in this difficult moment bought treasury bonds in USA because nowhere could they find a safe place to invest. For example, all commodities, that were used as reserve value after technological burst, have been going down with the present-day crisis. I think when the water makes calm, investors will have serious problems to evaluate where to put their money. The United States must work hard to improve its macroeconomic indicators.
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