Brad Setser on Government Borrowing

Brad Setser argues that the U.S. is borrowing far less from the world now than at this time last year, and that more government borrowing doesn’t always equate more total borrowing.

From CFR: “The amount the U.S. borrows from the world is the gap between the amount that Americans save and the amount that Americans invest at home. That turns out to be equal to the current account deficit. And for the US, it so happens that the current account deficit is about equal to the (goods and services) trade deficit. The trade deficit — at least in the first quarter of 2009 — was way down. In dollar terms, it was about half as big as it was in the first quarter of 2008. That implies that the US is borrowing far less from the world now than at this time last year. Why hasn’t the expansion of the fiscal deficit pushed the amount the U.S. borrows from the world up? Simple. American households and businesses are borrowing a lot less, so the total amount of money that Americans are borrowing isn’t rising.”

Why hasn’t the expansion of the fiscal deficit pushed the amount the US borrows from the world up? Simple. American households and businesses are borrowing a lot less, so the total amount of money that Americans are borrowing isn’t rising.

It would be quite productive if we could have a higher savings rate and a smaller deficit on the current account. A higher savings rate would allow for an increase in investments in private capital along with our investment in public capital, consequently prompting an increase in productivity. That way we don’t have to rely on massive borrowing from abroad.

Graph: CFR

Be the first to comment

Leave a Reply

Your email address will not be published.


*