The US Heading for a Crash warns treasurers Cheif Economic Advisor
Ken Henry said the US current account and budget deficits were creating imbalances in savings and investment that could lead to a sharp fall in the US dollar and a bond market sell-off.
Ken Henry suggested a flood of money pouring into the US to support its twin deficits was similar to the stockmarket's dotcom bubble of the late 1990s, and that it could push up US and world interest rates
He also said it was "worryingly reminiscent of Federal Reserve chairman Alan Greenspan's warning in 1996 of irrational exuberance in US stocks".
He said it would damage US economic growth, cutting Chinese exports of manufactured products to US markets and threaten the world economy, including the boom in Australian mineral exports to China.
He said, A slowdown in American growth could lead international private investors to pull out of the country.
Foreign central banks, which have been buying long-term American government bonds, are already facing big losses as a result of the fall in the value of the greenback.
"What if they change their mind?" Dr Henry asked.
Source: The Australian