Week 1: The Financial Structure of the American Government, Fiscal Federalism & Budgets

The Great Treasuries Binge

The article discusses the current deficit and the potential for it to grow under what many speculate will be another round of tax cuts from President Donald Trump. The deficit is currently over a trillion dollars. Politically there is consensus on both sides of the aisle that large deficits are acceptable. This is a change from the Obama presidency when Republicans accused the president of profligacy. The article discusses the largest investors in American Treasuries, each of which is quite interesting for their own reasons. American companies are one such group. Corporate savings are high with American firms now as net suppliers of savings to the rest of the economy. A natural place for these savings is invested in Treasuries. Two other groups are motivated by the consequences of the Great Recession. Banks must now meet certain liquidity requirements. They seem to be meeting these standards through larger investments in Treasuries. American households have shown a 70% increase in savings over the past three years. Likely the effect of the recession is still present and motivating such behavior. International investors are faced potential trade wars and general uncertainty. The European Union’s investment in Treasuries has climbed significantly over the last ~5 years. Deficits and growing debt seem to be holding for now but this profligacy along with heavy global reliance on American Treasuries seem to be economically irresponsible in the long term.