Although foreign investors have not as yet significantly slowed their financing of U.S. capital investments, since early 2002, we have observed a decline in the value of the dollar and a reduction in the share of dollars in global crossborder portfolios.13 If the currently disturbing drift toward protectionism is contained and markets remain sufficiently flexible, changing terms of trade, interest rates, asset prices, and exchange rates will cause U.S. saving to rise, reducing the need for foreign finance and reversing the trend of the past decade toward increasing reliance on it.
Domestic demand should be further supported by our monetary policy measures and their favorable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the decline in oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment.