Covering Your AssetsIssue: May-June 2008
PEOPLE ARE beginning to worry about the strategic consequences of the United States' large current-account deficit. A deficit that has been sustained in no small part by the unprecedented buildup of dollar assets by central banks and sovereign wealth funds of other states. Worse, many of them are not U.S. allies. Could China and the major oil producers use their growing financial leverage to pressure the United States? Flynt Leverett, for one, does not shy away from strong claims. "The intersection of ongoing structural shifts in international energy markets with strategic trends in global financial markets poses the most profound challenge to American hegemony since the end of the Cold War," he wrote in these pages not long ago.