Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31498
Authors: 
Perelstein, Julia S.
Year of Publication: 
2009
Series/Report no.: 
Working papers // The Levy Economics Institute 554
Abstract: 
The argument put forward in this paper is twofold: first, that the financial crisis of 2007/08 was made global by the U.S. current account deficit. This is because 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. Second, there is global dependence on the U.S. trade deficit as a means of maintaining liquidity in financial markets. 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 worldfor example, those countries dependent on exporting to the United States in order to finance their debt.
Subjects: 
International reserves
financial instability
trade imbalances
JEL: 
E58
F33
F41
G15
Document Type: 
Working Paper

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