A fistful of dollar deficits

The deleveraging process in the US appears to be coming to a close. A significant increase in government borrowing is likely to drive overall debt higher, while we expect a modest re - leveraging from households.

Despite high levels of debt, we do not envisage systemic vulnerability in the corporate sector, given it continues to be supported by strong income and low interest rates. We have identified some pockets of weakness in credit markets, which should potentially only create local difficulties.

The US re - leveraging should lead to a deterioration of external balances. Over time, the build - up of external indebtedness is likely to create headwinds for the US dollar.