Speaking at a meeting at the Centre for Economic Policy Research, Mr. Bergsten added the US could be hit by a triple whammy of rising prices, rising interest rates and a falling stock market, thus threatening confidence in the economy of the world's only superpower and reducing foreign investment. But the deficit's effect on the dollar is debatable, with analysts argueing whether it is a bad thing at all. A large deficit is caused by increased demand for imports and investment in the US by foreign investors, among other things. The US has seen vast flows of capital into the country in recent years, as foreign investors tried to cash in on a booming economy and hungry American consumers. Now an economic slowdown threatens to throw the country into recession.
Slowdown looms Some economists are more pessimistic.
Liken it to a car speeding down a highway at 90 miles per hour only to suddenly slow to 30 miles per hour. The rapid recovery of the euro also threatens confidence in the dollar. According to Mr Bergsten, the euro remains extremely undervalued. But he warned an appreciating euro faces a reluctant European business community, content with the euro remaining undervalued. A cheap euro ensures European goods will remain inexpensive in America.