Atrios links to a Financial Times article that reports that 83% of the U.S. current account deficit is financed by central banks around the world as opposed to individual investors. Even more disturbing is the underlying trend that’s becoming evident:

In November, Alan Greenspan, US Federal Reserve chairman, suggested foreign investors would reach a limit in their desire to finance the US current account deficit and diversify into other currencies or demand higher US interest rates, “elevating the cost of financing” the deficit and “rendering it increasingly less tenable”.

Until recently there had been little evidence to back up these fears but this has begun to change. Members of the Organisation of Petroleum Exporting Countries have cut the proportion of deposits held in dollars from 75 per cent to 61.5 per cent in the past three years.

The Bank of Thailand said this month it was considering reducing the proportion of its $50bn reserves held in dollars from 80 per cent to 50 per cent. Russian officials have made similar noises.

A detailed survey out today suggests that central banks are increasingly moving official reserves out of the dollar and into the euro.

Asian central banks are unlikely to pull the plug on dollar assets altogether. But they may be close to ending their willingness to provide cheap financing for an ever increasing US current account deficit.

This is why putting the deficit and the ongoing costs of “preemption” along with the cost of the President’s social security privatization plan/non-plan need to be front and center in any ongoing debate. I’ll be looking intently at the new budget proposals for 2006 to see if there will be any meaningful cuts in spending.

I suspect that in our lifetime, we’ll be dealing with a situation where the U.S. dollar isn’t the premier currency of the world anymore.