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Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit?

Thomas Klitgaard and Linda Wang

No 20181128, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: The federal tax cut and the increase in federal spending at the beginning of 2018 substantially increased the government deficit, requiring a jump in the amount of Treasury securities needed to fund the gap. One question is whether the government will have to rely on foreign investors to buy these securities. Data for the first half of 2018 are available and, so far, the country has not had to increase the pace of borrowing from abroad. The current account balance, which measures how much the United States borrows from the rest of the world, has been essentially unchanged. Instead, the tax cut has boosted private saving, allowing the United States to finance the higher federal government deficit without increasing the amount borrowed from foreign investors.

Keywords: trade; balance; current; account; balance; of; payments; saving; investment; spending; government; federal; deficit; borrowing (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2018-11-28
New Economics Papers: this item is included in nep-mac
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