Will the U.S. Trade Deficit Inevitably Lead to Monetary Crisis?
As C. Fred Bergsten, director of the Institute for International Economics, sees it, the United States is next in line for a monetary meltdown. “The clock is ticking. It’s going to hit. It could be in three months or three years,” says Bergsten, who was at Wharton last month delivering the annual Robert and Anita Summers lecture in international economics. Bergsten began by reviewing the causes of the various financial crises which have wreaked havoc in Europe, Mexico, East Asia, Russia and Brazil over the past two decades. He then predicted that an “American dollar” crisis will be next. The problem, he says, lies with the current $400 billion trade deficit 4% of the gross domestic product – and a net foreign debt that’s $4 trillion and growing. Bergsten believes that should U.S. inflation and interest rates rise, the dollar will drop sharply in value not by 50% as it did in the 1980s, but very possibly by 20% to 25%.
