So, will Foreign lenders decide to stop financing the U.S. external deficit and run away from the dollar, or will they instead require a risk premium on U.S. liquid assets whose safety could not be guaranteed any longer? A global recession coming?
http://quote.bloomberg.com/apps/news?pid=10000039&cid=berry&sid=a3_fwP85dZzM U.S. Investment Income Close to `Tipping Point': John M. Berry
Oct. 13 (Bloomberg) -- The U.S. may be approaching a dangerous ``tipping point'' in its international transactions.
At the end of last year, foreign investments in the U.S. were worth $2.5 trillion more than this country's investments in the rest of the world. Yet last year, those U.S. assets abroad remarkably still earned $30 billion more than the foreign assets here.
That stunning disparity in returns is one of many reasons why the huge U.S. current account deficits of recent years have been so readily financed. The sagging net investment position wasn't being compounded by an ever higher interest bill -- as is the case with the mounting U.S. government debt. <sniP>
Net U.S. investment income turned negative by $455 million dollars in the second quarter, marking a swift deterioration from a $15 billion surplus in the first three months of 2004.
If this trend continues -- and there's no reason to think it won't -- the U.S. will be paying a steadily rising net amount to foreigners, and those payments will both increase the U.S. current account deficit and worsen the country's net investment position.
In a recently published analysis, economists Pierre-Olivier Gourinchas of the University of California at Berkeley and Helene Rey of Princeton University warned this situation could have serious consequences for the U.S. <snip>
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