Tuesday, May 8, 2012

Ramanan - The Monetary Economics Of Sovereign Government Rating

The US dollar is the reserve currency of the world and slowly over time, the United States has turned from being a creditor of the rest of the world to becoming the world’s largest debtor nation. (Again not due to its public debt but because of its net indebtedness to foreigners). The US external sector is a great imbalance and any attempt to get out of the recession by fiscal policy alone will worsen its external situation leading to a crash at some point. (emphasis mine)
Read it at The Case for Concerted Action
The Monetary Economics Of Sovereign Government Rating
By Ramanan

Ramanan uses his expertise in the sectoral balances approach to take on the notion that countries with “sovereign currencies” cannot default. The US external deficit remains a significant source of demand leakage and requires significantly more attention going forward.

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