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Will the Bretton Woods 2 Regime Unravel Soon? The Risk of a Hard Landing in 2005-2006

By Nouriel Roubini and Brad Setser

The defining feature of the global economy right now is the $660 billion U.S. current account deficit. The world's largest economy - and the world's preeminent military and geo-strategic power - is also the world's largest debtor. The current account surpluses of most other regions of the world are the mirror image of the U.S. deficit. The U.S. absorbs at least 80% of the savings that the rest of the world does not invest at home. Barring an economic slump in the U.S. or a major fall in the dollar, the U.S. current account deficit looks set to expand significantly in 2005 and 2006.

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