Roubini and Setser assert that "Something will give" and that "No country, not even the United States, can finance large external deficits on terms that imply that its creditors are running very substantial risks of large capital losses for an extended period of time". Do you agree with this notion? Why has this not come to pass as of yet? What is your expected time horizon for this to proc (actuthat it accelerated through the crisis. Foreign central banks have only started to slow their accumulation to pre-crisis levels in late 2012/2013.
They take this point up again on page 13, when they discuss that this "system of reserve financing the "Revived Bretton Woods System" creates large tensions and that there is a "real high risk that the system will crack in the next two years and near certainty that the system will crack over the next four years." They assert that the "reserve accumulation required to sustain the system for four more years is simply too large". Why was this not the case? Give me two plausible reasons and respond to one reason someone else posted for full credit.
P.S. Once again, this is discussed tangentially on page 10 when RS discuss the mixed blessing of the USD's 'exorbitant privilege' as this "could increase the risk that the world would finance large US trade deficits for too long, delaying the needed adjustment and making the eventual adjustment all the more difficult and unstable." Do you think that this is exactly what happened? Is this global recovery just the beginning of a serious double-dip when the rest of the world finally stops propping up the USD through dollar reserve accumulation?