As the global order in trade and capital flows is upended, investing in everything from equities to fixed-income securities has started to reflect a risk that was hard to imagine even six months ago.
The recent downgrade of U.S. debt by Moody’s is an example, as it points to the unsustainability of U.S. fiscal policy and to the risk facing foreign holders of dollar-denominated assets.
The downgrade also points to the increased possibility of a bond market selloff as investors lose confidence in the American economy and its institutions.
Global investors, who for 80 years helped finance the U.S. economy, are increasingly questioning the soundness of the dollar and dollar-based assets.
The result, as the economists Olivier Blanchard and Ángel Ubide have written, is a global flight from the American dollar.
The first to fall—the U.S. dollar
The benefit of a floating exchange rate is its ability to quickly absorb shocks to the…
