Abstract
The United States is uniquely placed in the world economy. The dollar is a universal medium of international exchange and is definitive money in the settlement of international debts. Thus, the US can run current account deficits and go into dollar denominated debt to foreigners indefinitely without provoking a currency attack requiring immediate repayment. However, this soft borrowing constraint and continued large current-account deficits erode America’s industrial base provoking an upsurge in US protectionism — while draining scarce capital from poorer countries around the world.
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