The New Global Equilibrium

Few months after the onset of the crisis, the flight to safe assets at world level benefited the US treasuries, while the financial deleveraging favored the US dollar. Once the economic and market conditions return to normal, we will see a reversal of these trends (i.e., a weakened dollar and an increase of US interest rates). The return of risk appetite will be accompanied by a more regulated financial scenario and a reduced leveraging that will result in a persistent shortage of international capital, an increase of private savings from the wealth effect of the crisis, the implementation of expansionary fiscal policies and the reduction of the foreign income of economies with a trade surplus that might lead to a “savings drain” by global lenders. Despite the reduction of the US current account deficit, the United States is likely to face more stringent conditions for financing in the years to come. Within this context, we expect that the Federal Reserve will keep interest rates at a low level at least until there are clear recovery signs of the US economy, at the expense of a higher depreciation of the dollar.