It was going to happen sooner or later. Maybe the meltdown in the world of finance hastened the trillion dollar deficit, though US governments have been trying hard to breach that milestone. Three months before the end of this financial year it’s happened.
Maybe it’s not such a frightening number in the context of the bailouts – already in the multi-trillions in the US and in Europe. But the symptoms remain a cause for concern – spending beyond the ability to repay. And passing the trillion dollar milestone has drawn attention to this issue. It has highlighted the concern of dollar borrowers that the global reserve currency may be losing its lustre. And rightly so. But as with other machinations in the world of money it is not in the players’ interest that the game unwinds too quickly. The dollar will remain a reserve currency for the time being, but it is prudent to diversify exposure, especially for long term holdings.