The US government has been running huge fiscal deficit and capital account deficit. These are financed by inflows from the rest of the world especially from Asian countries in the form of forex reserves in dollars. But the US deficit is unsustainable and the dollar could rapidly lose its value causing major imbalance in the world economies.

The US is losing the privilege fast to print the world reserve money. It is not caring about it. Definitely it will regret one day.

Most of the emerging markets like China, India and South Korea have ample foreign exchange reserves. China has accumulated around $600 bn in its reserves. Falling dollar is posing a great risk for these economies.

Rising real estate prices in the US since 1995, due to falling rate of interest and reduced cost of financing results in higher consumption by the US consumers. House prices have shot up to the highest in 25 years. Many economists are warning that housing price bubble will burst in the near future as the stock market bubble did in 2000. Other reasons for higher consumption are prospering job market and no structural fall in the real personal income. This higher consumption in the US both at private and government level is increasing the demand for goods and services from the rest of the world, thereby, widening the current account deficit. To worsen the situation, the rate of savings is declining.

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