Greenspan – Trade Deficits do Matter

Allen Greenspan relayed the following (from the New York Times) in a speech in Frankfurt Germany on Friday:

``It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point,'' Greenspan said.

The New York Times noted:

So far, foreigners are willing to lend the United States money to finance the current account imbalances, Greenspan pointed out. The worry, however, is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments. That could cause foreigners to unload investments in U.S. stocks and bonds, sending their prices plunging and interest rates soaring.