Stock Plunge Could Become Dollar Death Spiral

America’s soaring trade deficit, now running at a record $1.32 trillion annual rate, requires the US to sell paper to its foreign suppliers in return for goods. Most of the paper the US sold to foreigners during the past few years was equity in US corporations, rather than government or corporate bonds. Valuations in the US stock market soared as the Federal Reserve forced interest rates lower, by reducing its short-term lending rate to zero and by purchasing $6 trillion of Treasury securities.

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