The Dollar’s Future
Harvard economics professor Martin Feldstein says the U.S. dollar will remain a strong reserve currency, but that our national debt makes the Euro a competitive alternative.
“The major risk to the sustained role of the dollar is the large and growing US national debt. After varying between 25% and 50% of GDP for the past half-century, the recent budget deficits have caused the debt to reach 62% of GDP. The official non-partisan Congressional Budget Office predicts that the policies that now seem most likely could push the debt to 100% of GDP by the end of the decade. Foreign investors might therefore fear that future US administrations will be tempted to reduce the real value of that debt by allowing a higher inflation rate. But that is unlikely, given the Fed’s general anti-inflationary consensus and the very short average maturity—roughly four years—of the national debt.”
