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Financing U.S. debt: Is there enough money in the world – and at what cost?

  • Kitchen, John
  • Chinn, Menzie

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://mpra.ub.uni-muenchen.de/24736/1/MPRA_paper_24736.pdf
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File URL: http://mpra.ub.uni-muenchen.de/29151/2/MPRA_paper_29151.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24736.

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Date of creation: 12 Aug 2010
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Handle: RePEc:pra:mprapa:24736
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  1. Charles Engel & John H. Rogers, 2006. "The U.S. current account deficit and the expected share of world output," International Finance Discussion Papers 856, Board of Governors of the Federal Reserve System (U.S.).
  2. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.).
  3. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  4. Francis E. Warnock & Veronica C. Warnock, 2005. "International Capital Flows and U.S. Interest Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp103, IIIS.
  5. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  6. International Monetary Fund, 2010. "United States; Selected Issues Paper," IMF Staff Country Reports 10/248, International Monetary Fund.
  7. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47.
  8. 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.
  9. Kitchen, John, 2002. "A Note on Interest Rates and Structural Federal Budget Deficits," MPRA Paper 21069, University Library of Munich, Germany, revised Oct 2002.
  10. Joshua Aizenman & Nancy Marion, 2009. "Using Inflation to Erode the U.S. Public Debt," NBER Working Papers 15562, National Bureau of Economic Research, Inc.
  11. Michael R. Pakko, 1999. "The U.S. trade deficit and the "new economy"," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 11-20.
  12. 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.
  13. William R. Cline, 2005. "United States as a Debtor Nation, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3993.
  14. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  15. 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.
  16. 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.
  17. Congressional Budget Office, 2010. "Federal Debt and the Risk of a Fiscal Crisis," Reports 21625, Congressional Budget Office.
  18. repec:fip:fedgsq:y:2009:x:37 is not listed on IDEAS
  19. Congressional Budget Office, 2010. "CBO's Budgetary Treatment of Fannie Mae and Freddie Mac," Reports 41887, Congressional Budget Office.
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