How does the large US deficit present financial markets with a risk free investment opportunity?
It doesn’t. It does in fact present many lucrative investment opportunities but they are not risk-free. The US deficit has many investors (particularly and sadly young ones) scared out of the market. The market is driven by supply, demand, and sentiment. The ones that are in the market have had a positive sentiment since September 2010 but I’m talking about the ones that are out of the market all together. Investors panicked during the crash and flooded bonds, creating a bubble which is now bursting. They are now looking for other investment opportunities. What do you think it will be? Equities. This is a good thing for investors to still be fearful because according to a recent analysis, a majority of the stocks on the S&P 500 are trading at a 25% discount of their pre-crash levels. For more sophisticated investors/traders, they are able to scoop up shares of great companies at a compelling value (particularly financial stocks because they have lagged the other sectors in this slow re
The main argument is that a large deficit will in the long run undermined the strength of the country’s currency as one solution to the deficit is for the country to start printing money. Printing money leads to high inflation and currency devaluation. Thus if you believe that would happen to US you could Buy for example Euros and Sell US Dollars.
