corrente

Tresy's $200 banknote (back) is way a propos.

Floyd Norris of the Times writes:

There were demonstrations around the world against the war.

But guess who was financing it? The world was. Figures released this week showed that private foreign citizens bought an unprecedented $129 billion in United States government and agency securities. Official accounts, mostly central banks, added $43 billion more.

All told, foreigners bought almost 80 percent of the net increase in Treasury and agency debt during the quarter. They now own 38 percent of outstanding Treasuries, more than double the figure of a decade ago.

We need that capital because of the huge current account deficit this country is running. That deficit — largely reflecting the trade deficit — went above 5 percent of gross domestic product in the first quarter for the first time in history. The second-quarter number, when it is released Monday, is likely to be about the same.

It's a nice situation while it lasts. We get cheap imports, which hold down inflation and enable consumers to buy more. The flood of foreign money helps to keep interest rates low while supporting the dollar. The war can be financed relatively cheaply at those low rates.

But borrowers may eventually need to pay attention to the views of the lenders. It would not be fun if foreigners began to invest the way they talk.

Or until they figure out that the US is turning into a fiscal Banana Republic.