CAMBRIDGE, Massachusetts -- When world financial leaders meet in Singapore this month for the joint World Bank/International Monetary Fund meetings, they must confront one singularly important question: Is there any way to coax the IMF's largest members, especially the United States and China, to help diffuse the risks posed by the world's massive trade imbalances?
This year, the U.S. will borrow roughly $800 billion to finance its trade deficit. Incredibly, the U.S. is now soaking up roughly two-thirds of all global net saving, a situation without historical precedent.
While this borrowing binge might end smoothly, as U.S. Federal Reserve Chairman Ben Bernanke has speculated, most world financial leaders are rightly worried about a more precipitous realignment that would likely set off a massive dollar depreciation and possibly much worse. Indeed, if policymakers continue to sit on their hands, it is not hard to imagine a sharp global slowdown or even a devastating financial crisis.
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