The former International Monetary Fund (IMF) Chief Economist Olivier Blanchard warns that the US could face a serious fiscal crisis as the debt deficit is reaching new highs each day. The deficit is ballooning as the US is borrowing trillions of dollars and is unable to control the $34 trillion debt. The spiraling debt is also a concern to BRICS and developing countries as they keep the US dollars in their Central Bank reserves.
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The debt spill-off creates a ripple effect and takes a toll on BRICS and other developing nations’ economies. Therefore, keeping the US dollar as a reserve is equally risky as the US debt crisis remains uncontrollable.
IMF economist Blanchard explained to Bloomberg that a US financial decline this time will benefit BRICS and other developing countries. Blanchard said that BRICS is moving away from the US dollar and a crisis in the homeland will benefit their local currencies and native economies.
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Blanchard warned that the US needs to clamp down on the debt before things get messy and out of hand. The BRICS alliance could make use of the opportunity and push local currencies for trade instead of the US dollar. Read here to know how many sectors in the US will be affected if BRICS ditches the dollar for trade.
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“In the US, I’m very worried because the primary deficits are very large. There’s absolutely no attempt to decrease them in any way, shape or form,” said Blanchard to the House of Lords Economic Affairs Committee. He added, “As we know, if they struggle in the US, then this has implications for the rest of the world”.
However, “the rest of the world” is starting to de-dollarize their economies to safeguard themselves from US dollar debt. In conclusion, the world will not come crashing down this time if the US debt goes completely out of control. The only country suffering will be the US while BRICS and other countries will move forward strengthening their native economies.