Debtor Nation

Economist Nouriel Roubini speaks to one of the biggest problems facing our economy in the near future, as a result of our tremendous debt:

THE 19th century was dominated by the British Empire, the 20th century by
the United States. We may now be entering the Asian century, dominated by a
rising China and its currency. While the dollar’s status as the major reserve
currency will not vanish overnight, we can no longer take it for granted. Sooner
than we think, the dollar may be challenged by other currencies, most likely the
Chinese renminbi. This would have serious costs for America, as our ability to
finance our budget and trade deficits cheaply would disappear.

Traditionally, empires that hold the global reserve currency are also net
foreign creditors and net lenders. The British Empire declined — and the pound
lost its status as the main global reserve currency — when Britain became a net
debtor and a net borrower in World War II. Today, the United States is in a
similar position. It is running huge budget and trade deficits, and is relying
on the kindness of restless foreign creditors who are starting to feel uneasy
about accumulating even more dollar assets. The resulting downfall of the dollar
may be only a matter of time.