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Financing US Debt: Is There Enough Money in the World – and at What Cost?

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  • John Kitchen
  • Menzie Chinn

Abstract

This paper examines the potential role for foreign official holdings of U.S. Treasury securities and the associated implications for Treasury security interest rates, international portfolio allocations, net international income flows, and the U.S. net international debt position, using a baseline outlook of current and projected U.S. budget deficits and growing debt. The analysis applies empirical results regarding the role of U.S. structural budget deficits and foreign official holdings of U.S. Treasuries in determining Treasury security interest rates. Although initial review of information suggests that the world portfolio could potentially accommodate financing requirements over the intermediate horizon, substantial uncertainty remains about the relationships among foreign official holdings, exchange rates, and trade; the potential effects of “crowding out” in the international portfolio; and how and whether world portfolio allocations would adjust to accommodate higher shares of U.S. assets.

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File URL: http://hdl.handle.net/10.1111/infi.2012.14.issue-3
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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 14 (2011)
Issue (Month): 3 (December)
Pages: 373-413

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Handle: RePEc:bla:intfin:v:14:y:2011:i:3:p:373-413

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References

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  1. C. Fred Bergsten, 2009. "Long-Term International Economic Position of the United States, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr20.
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  8. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 333-389.
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  11. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
  12. Congressional Budget Office, 2010. "Federal Debt and the Risk of a Fiscal Crisis," Reports 21625, Congressional Budget Office.
  13. Kitchen, John, 2002. "A Note on Interest Rates and Structural Federal Budget Deficits," MPRA Paper 21069, University Library of Munich, Germany, revised Oct 2002.
  14. John Kitchen, 2007. "Sharecroppers or Shrewd Capitalists? Projections of the US Current Account, International Income Flows, and Net International Debt," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 1036-1061, November.
  15. Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 280-304.
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  17. Congressional Budget Office, 2010. "CBO's Budgetary Treatment of Fannie Mae and Freddie Mac," Reports 41887, Congressional Budget Office.
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Citations

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Cited by:
  1. Steiner, Andreas, 2014. "Current account balance and dollar standard: Exploring the linkages," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 65-94.
  2. James D. Hamilton & Jing Cynthia Wu, 2011. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," NBER Working Papers 16956, National Bureau of Economic Research, Inc.
  3. Canzoneri, Matthew & Cumby, Robert & Diba, Behzad & López-Salido, David, 2013. "Key currency status: An exorbitant privilege and an extraordinary risk," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 371-393.

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