There is an equal and opposite formulation to Keynes's maxim "in the long run we are all dead". It is that the long run ultimately catches up with all fiscal profligates. Yet this rule, which has stood the test of history, appears to have been suspended for the benefit of the world's unique superpower. Likewise for the world's greatest currency brand name, the dollar.

The US has been conspicuous in its failure to set out a credible medium term strategy to address a huge budget deficit. It continues to espouse loose fiscal and monetary policy, which is traditionally a recipe for a weak currency. Yet the dollar, in the midst of Europe's sovereign debt crisis, remains strong. The reason is that there is no realistic alternative for the world's excess savers in northern Europe and Asia, who are piling up official reserves.

A month ago in this column I argued that the dollar would remain the world's pre-eminent reserve currency because US productivity and demographics were more robust than in stagnant Europe, while China would not be able to offer an alternative for the forseeable future. Yet as the weeks go by, the consequences of this strike me as increasingly disturbing. The reason is that safe haven status in a fiscal firestorm is a privilege that can too readily be abused.

In Europe the pressure from markets for fiscal retrenchment is palpable, while the only big country that is not under such pressure, Germany, is retrenching anyway. There is a strong possibility that both fiscal and monetary policy will be tightened prematurely. No such pressure exists in the US. And the dual mandate of the Federal Reserve to look after growth as well as the price level, together with recent rhetoric from Fed chairman Ben Bernanke, suggests that tightening is likely to happen later rather than sooner. It has always been politically difficult in the US to raise interest rates before unemployment is set on a downward path, by which time inflationary damage may be taking place.

In the short run this will be a boon for Europe, where a double dip in the eurozone economy will be less painful than it would otherwise be thanks to the devaluation of the euro and the import of stimulus from the US. As Fred Bergsten of the Peterson Institute for International Economics argued in the Financial Times last week, the US is taking the strain of continuing global imbalances. In the long run changing demographics and rising real wages in China and much of the rest of Asia will ensure a rebalancing of economies towards consumption. This will mitigate the imbalances, but the wait may be interminable.

The question is what happens to the US in between. Its position bears some similarity to that of the UK after the First World War. As the hegemonic power in the global monetary system it is acting as a safe haven despite being fiscally debilitated. This means that the haven will become progressively more unsafe as bolt-hole investors in short term dollar assets provide a constant reprieve to policymakers who find it difficult to undertake serious fiscal consolidation.

David Fuller's view This is a good column. The USA abuses its haven status because it can, as did every other country with a dominant reserve currency in earlier centuries. Realpolitik rules and the USA will continue to welcome the world's excess savings, without addressing its fiscal imbalances, at least until the November elections have passed.

In the short term, this has thrown a lifeline to the economies of Euroland and the UK. Japan may also follow the competitive devaluation route.

Meanwhile, savvy investors know that the USD is only a temporary safe haven. The US Treasury and Federal Reserve also know that a strong currency will not help the export-led recovery which they hope for. My view is that the USD will only extend its recent rally if events cause another stock market panic this year. Currently, the greater likelihood is that investor confidence slowly returns, lifting stock markets and industrial commodities over the medium term. In this event, I think the USD will extend the very recent retreat from its highs, particularly against Asia-Pacific currencies (ex-Japan), represented here by the Asian Dollar Index.