Building toward crisis in the global economy—again

Debt in relation to GDP remains at historically high levels in the US and many other economies. Moreover, in the case of the US, the gap between what its residents own abroad and the holdings of its assets by foreign residents widened to 43 percent of GDP at year-end 2016 as ongoing US trade deficits continued to be financed by foreign savings. America’s high level of external debt makes it increasingly vulnerable to loss of confidence in the dollar as the key currency given that rising debt in the household and business sectors threatens to lower the level of growth on which that confidence depends. The drag of continued high levels of debt and rising instability in financial markets suggest that yet another crisis may hasten the need for emergency responses to bring about the monetary and regulatory reform required to restore stability in the global system.