US Federal Reserve chairman Alan Greenspan has warned of the danger that foreign investors may become fed up with financing the US's huge current account deficit.
Greenspan said in a speech to the European Banking Congress in Frankfurt that the deficit could not be indefinitely supported by money from abroad.
The US current account deficit reached a record $166.2 billion in the second quarter. Japan and China have been major buyers of US debt in recent years.
Greenspan, who has made repeated warnings that action will have to be taken to rein in the deficit, said current account imbalances are not an automatic problem.
But he added that 'cumulative deficits which result in a marked decline of a country's net international investment position - as is occurring in the US - raise more complex issues'.
Greenspan said that for the moment the US was seeing only 'limited indications' of foreign resistance to financing the deficit. But he warned that this could not go on forever.
Economists worry that foreigners could suddenly lose their appetite for dollar-denominated investments and unload investments in US shares and bonds. That would hit stock market confidence and send interest rates soaring.
