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Explaining US Financial Instability and Its Global Implications

Published online by Cambridge University Press:  07 May 2025

Robert Wade
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As everyone now knows, the current financial market turmoil spreading across the Atlantic economy and beyond started with rising defaults in the United States mortgage market. How did the US come to experience a gigantic house-price bubble?

The explanation starts with US trade deficits and their financing. The US has been running an increasing trade (or more accurately, current-account) deficit since the early 1980s, with only one short interruption. The excess of imports over exports is paid for by newly printed dollars or Treasury bonds.

Type
Research Article
Information
Asia-Pacific Journal , Volume 5 , Issue 10 , October 2007 , e3
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
Copyright © The Authors 2007