Tipping the imbalance

Will the financial crisis in the US and other Western countries lead Asian central banks to stop buying US Treasuries? Without this support, will exchange rates move from their artificially low position? Investors in Asia need to consider how to handle the inflationary risk

The greatest global macro-economic imbalance remains the US current account deficit. For the best part of a decade, Asian central banks, oil producers and others in emerging markets have been building excessive reserves and investing them primarily in US Treasuries. This accumulation has been precautionary, but has also kept exchange rates artificially low. The traditional foreign private sector buyers of US Treasuries, corporate debt and equities stopped buying around two years ago. The US current account deficit - and with it the negative personal savings rate in the US - is now in effect...