The bimonthly Foreign Affairs is widely considered to be the most influential magazine for the analysis and debate of foreign policy and economics. Its website,ForeignAffairs.com, publishes original daily features and hosts the complete archives going back to 1922.
Here a discussion, from 2010, of threats to the dollar and rising interest rates (weaker bond prices, discussed yesterday).
In 1961, the Belgian economist Robert Triffin described the dilemma faced by the country at the center of the international monetary system.1 To supply the world's risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened. The endgame to Triffin's paradox is a global, wholesale dumping of the hcenter country's securities. No one knows in advance when the tipping point will be reached, but the damage brought about by higher interest rates and slower economic growth will be readily apparent afterward.
For a long time now, the United States has seemed vulnerable to the fate that Triffin predicted. Since 1982 it has run a current account deficit every year but one, steadily piling up obligations to foreigners. Because foreigners have been eager to hold dollar assets, they have willingly enabled this pattern, pouring capital into the United States and financing the nation's surplus of spending over savings. The dollar's status as the world's reserve currency has become a facet of U.S. power, allowing the United States to borrow effortlessly and sustain large debt-financed military commitments. Capital has tended to flood into the United States especially readily during moments of geopolitical stress, ensuring that the nation has had the financial wherewithal to conduct an assertive foreign policy precisely at moments when crises demanded it. But the capital inflows associated with the dollar's reserve-currency status have created a vulnerability, too, opening the door to a foreign sell-off of U.S. securities that could drive up U.S. interest rates and render the nation's formidable stock of debt far more expensive to service.