US Dependence on Foreign Capital:Structural Hegemony or Decline?
A Critical Analysis of US Foreign Debt, Dollar Seigniorage and theEmergence of the Euro
"Given that the United States currently has a budget deficit of $500 billion, acurrent account deficit of $600 billion, well above 5 percent of GDP, and the rest of the world owns more than $7 trillion of US assets, which represents more than 50%of the US economy, there is only one question to approach: What does this USdependence on foreign capital mean? Does it mean that the United States has beenable to construct a world economic order that allows it to live at the expense of therest of the world? Or does it show a slow but irreversible decline of the superpower?At a first glance it seems that the first answer is the more appropriate. Thanks to the neoliberal financial order, the structural power of Wall Street and the centrality of thedollar in monetary affairs, the US acts as a magnet for investors, and can socomfortably live beyond its means. However, one recent event has radically changed the status quo.
The introduction of the euro is the greatest challenge to US hegemonyin the last thirty years. The European currency will compete with the dollar for international seigniorage, which means that the dollar will depreciate further, interestrates will rise and the living standards of the US citizens, who are hugely indebted,will fall. Thus, US dependence on foreign capital will pass from what is today astructural hegemony to what in the future will be a painful decline..."