FYI: The United States has been borrowing from the rest of the world since the mid-1980s. From 2000 to 2008, this borrowing averaged over $600 billion per year, which translates into U.S. spending exceeding income by almost 5.0 percent of GDP. Borrowing fell during the recent recession, as would be expected, and then rebounded with the recovery. Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997. A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.
The amount borrowed from the rest of the world is measured by the current account balance, which is the broadest measure of cross-border transactions. As seen in the chart below, the United States was spending substantially above its income before the recession, to the tune of 5.8 percent of GDP in 2006. The amount of borrowing fell during the recession and started to rebound in 2010, but borrowing has since trended down.
Regards,
Ted
http://www.ritholtz.com/blog/2014/09/the-declining-u-s-reliance-on-foreign-investors/print/
Comments
"With yields remaining artificially low, we observe zero interest-rate policy perverting capital allocation decisions. Money continues to flow around the globe in a quest for yield, instigating a continued rise in risk assets.
Many who have been accustomed to the lower risk of high-grade bonds and Treasuries are now finding themselves looking elsewhere. There is no better example of this than the first six months of this year when global stock
markets, high-yield bonds, gold, oil and long-dated Treasury bonds all saw their value increase in chorus, a real rarity. As yields have declined, the expectations and spending needs of investors appear to have remained constant,leading them to assume additional risk in varied asset classes around the world. Whereas many past bull-market
rallies have been greed-based, this one seems more need-based.
The U.S. isn’t alone in keeping rates low. Many countries continue to harbor deflation fears. Japan is still below its inflation target. EU countries have just marginal inflation and it wouldn’t take much to tip them into
deflation. Some EU countries like Greece and Portugal are already suffering from outright deflation. As a result,
the EU overnight rate is now a negative 0.1%, which means it costs banks to keep money on deposit with the 3
European Central Bank (ECB). Its main lending rate is now down to just 0.15%. It’s hard to argue that such low
rates wouldn’t affect an investment decision.
With slow growth and low inflation (and fear of deflation) plaguing most developed economies, it’s hard
to see the current easy-money regime ending any time soon. For it to end, the Fed must first slow its buying, then stop buying and then either liquidate or roll the assets they’ve purchased. It appears that we have a ways to go before they aren’t accommodative — unless their hand is forced. The U.S. is increasingly on its own in financing
its deficits, with foreigners having largely stepped out of the U.S. Treasury market.
If we need financing assistance
from our trading partners, then we might need higher interest rates to get them to step up their Treasury buying.
Or, the Fed could always reverse course on the QE taper and continue to self-finance. Or, the current account balance shrinks, thereby requiring less funding, with either exports and the economy growing, or imports and the economy shrinking. That’s a lot of “oars” needed to keep the boat moving — which begs some degree of caution.
http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/2014-q2-crescentBD9EEAFAF16B.pdf?sfvrsn=4