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Policy Paper
Global imbalances are back—and this time the risks look different. The 2008 financial crisis showed how persistent current-account deficits and surpluses between major economies can fuel financial instability and trigger sudden, severe reversals of capital flows. After almost two decades, many thought that episode had been resolved. It had not. New imbalances have built up, with a familiar cast: China, Germany, Japan, and oil exporters running large surpluses, and the United States absorbing the rest of the world's savings. But the underlying dynamics have shifted in ways that make the current situation harder to read and potentially harder to unwind. This paper traces those shifts and asks whether the world is better or worse placed to manage them this time around.
The situation today is not simply the result of trade imbalances or unfair competition. It reflects the structural role of the U.S. as the world's balance-sheet absorber of last resort—a country with assets that everyone wants to hold, regardless of what tariffs or exchange rates do. That role comes with new vulnerabilities: persistent global demand for dollar-denominated safe assets, soaring public U.S. debt, equity markets concentrated in a handful of technology firms, and a financial system increasingly reliant on non-bank intermediaries. Fixing this would require coordinated action involving fiscal adjustment in the United States, stronger domestic demand in China, and deeper financial integration in Europe. What is missing is the political will to act, at a moment when geopolitical fragmentation and strategic rivalry make international cooperation harder than ever. The 2008 crisis was not the last word on global imbalances. It may have been the rehearsal.
