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U.S. Debt and Global Imbalances


  • Jane D'Arista


Concern about global imbalances has been building since the 1990s and analysts from a variety of disciplines have called attention to aspects of the problem, ranging from the unsustainability of the U.S. current account position to the role of ‘under’ and ‘over’ saving rates in deficit and surplus countries. Many analysts assume that imbalances arise as a result of developments and policies within national economies. This paper argues that imbalances also result from interactions at the global level and are at least partially shaped by pressures generated by the current international monetary and payments systems on the direction and volume of international capital flows. This paper discusses the ways in which a fiat currency and privatized international payments system under the guardianship of a few wealthy developed countries and their private multinational financial institutions have contributed to the problem. It examines the U.S. international investment position, noting the links between changes in net capital flows and credit expansion and between foreign exchange reserves held in the U.S. and liquidity creation. It discusses the risks in failing to address the U.S. foreign debt problem and offers proposals needed to address the monetary aspects of global imbalances.

Suggested Citation

  • Jane D'Arista, 2007. "U.S. Debt and Global Imbalances," Working Papers wp136, Political Economy Research Institute, University of Massachusetts at Amherst.
  • Handle: RePEc:uma:periwp:wp136

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    References listed on IDEAS

    1. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
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    More about this item


    U.S. external debt; global payments imbalances; U.S. monetary policy; international monetary reform;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H6 - Public Economics - - National Budget, Deficit, and Debt


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