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Macroeconomic Imbalances in the United States and Their Impact on the International Financial System

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  • Julia S. Perelstein

Abstract

The argument put forward in this paper is twofold. First, the financial crisis of 2007-08 was made global by the current account deficit in the United States; and second, there is global dependence on the United States trade deficit as a means of maintaining liquidity in financial markets. The outflow of dollars from the United States was invested in U.S. capital markets, causing inflation in asset markets and leading to a bubble and bust in the subprime mortgage sector. Since the U.S. dollar is the international reserve currency, international debt is mostly denominated in dollars. Because there is a high degree of global financial integration, any reduction in the U.S. balance of trade will have negative effects on many countries throughout the world--for example, those countries dependent on exporting to the United States in order to finance their debt.

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  • Julia S. Perelstein, 2009. "Macroeconomic Imbalances in the United States and Their Impact on the International Financial System," Economics Working Paper Archive wp_554, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_554
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    Cited by:

    1. Lino Sau, 2015. "Do the International Monetary and Financial Systems Need More Than Short-Term Cosmetic Reforms?," International Journal of Political Economy, Taylor & Francis Journals, vol. 44(4), pages 325-340, October.
    2. Ernesto Screpanti, 2010. "La grande crisi e l’imperialismo globale," Department of Economics University of Siena 590, Department of Economics, University of Siena.
    3. Jan Toporowski, 2010. "Excess Debt and Asset Deflation," Chapters, in: Steven Kates (ed.), Macroeconomic Theory and its Failings, chapter 13, Edward Elgar Publishing.

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