Discussion Paper

Is the United States Relying on Foreign Investors to Finance Its Bigger Budget Deficit?

Abstract: The fiscal packages passed in 2020 and 2021 to help the economy cope with the pandemic caused a dramatic increase in federal government borrowing. One might have expected that foreign investors were important buyers of this new debt, but that was not the case. They were instead net sellers of Treasury securities. Still, the amount of money flowing into the United States increased last year, which helped fund the government’s borrowing, if only indirectly. The upturn in inflows, though, was quite modest as a surge in domestic personal saving largely covered the government’s heightened borrowing needs. How the reliance on foreign funds changes in 2021, when the government deficit will again be quite elevated, will depend on whether domestic personal saving remains high.

Keywords: COVID-19; pandemic; budget deficits; financial flows; saving; investment; spending; balance of payments; financial account; federal government; fiscal policy;

JEL Classification: F00; H0;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2021-05-21

Number: 20210521