Economics weekly by Lloyds TSB

After a period of narrowing, the US current account deficit may soon start widening again, if recent currency and growth trends persist. Global financial market volatility has returned with a vengeance. Are global imbalances returning?

After a period of narrowing, the US current account deficit may soon start widening again, if recent currency and growth trends persist. Global financial market volatility has returned with a vengeance. As a result, the US is once again seen as a safe haven, and the dollar is rising as buyers drive up the price of US assets. On one level, this could simply be seen as bad news for the sustainability of the global economic recovery. A rise in the dollar should slow US growth, give rise to protectionist sentiment and perhaps derail the economic recovery. On a deeper level, however, it also poses risks to the stability of the global financial system because of the return to excessive demand for some assets. After all, it was a rise in the demand for assets that helped to create the bubbles that then burst with such devastating consequences for the global economy. We take a look at these risks in this Weekly.

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