It was financed by foreign private investors seeking an opportunity to invest in the US corporate sector. Today’s current account deficit has a domestic flip side in terms of a high budget deficit. It is financed to a large extent by Asian central banks which purchase US treasuries by intervening in the foreign exchange markets.
Exchange rate movements like the dollar depreciation help to unwind imbalances in the world economy, even though they cannot do the trick entirely on their own. The domestic causes of those imbalances need to be addressed. For Europe, the main task in this respect is to boost growth potential by embarking on structural reforms in order to ease existing economic rigidities.