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

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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.

Suggested Citation

  • Thomas Klitgaard & Linda Wang, 2018. "Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit?," Liberty Street Economics 20181128, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87296
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    More about this item

    Keywords

    trade balance; current account; balance of payments; saving; investment; spending; government federal deficit borrowing;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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