The International Monetary Fund yesterday warned that the colossal United States trade deficit was a noose around the neck of the economy, emphasising that the once mighty dollar could collapse at any moment.
Arguing that the world’s big economies were already too dependent on the willingness of American consumers to live beyond their means, the IMF said the US could not continue to run a current account deficit of 5% of GDP.
The IMF’s chief economist Kenneth Rogoff said that it was just a matter of time before the gap closed, tipping the dollar into a potentially steep fall.
In its twice yearly report on the world economy, the Fund warns that even a controlled slide in the dollar’s value is likely to slow US growth and unless other countries picked up the slack, the global economy would suffer.
Mr Rogoff said the collapse of world trade talks last weekend in Cancun could spell disaster for a global economy already too dependent on unbalanced growth in the US. Describing the breakdown as a “tragedy”, he said global poverty would rise if protectionism took root in the world’s biggest economies.
Misalignments between the world’s biggest currencies are also likely to feature on the agenda, with the US hoping other countries will support its campaign to get China to strengthen its currency, the yuan.
US Dollar ‘could collapse at any moment’
So much for a Global economy!