Financing U.S debt

Menzie Chinn. Paper


"Although the United States has had little trouble financing its large budget deficits in recent years and at low interest rates, the results of the paper show the extent to which Federal Reserve policies (from expanding its holdings of Treasuries and government-backed securities) and the large purchases of Treasuries by foreign governments and central banks (foreign official assets) have contributed to keeping longer-term Treasury security yields low (and low relative to the low short-term interest rates from Federal Reserve policy). Once the U.S. and major developed world economies return to a more established economic expansion, however, the United States likely will face greater challenges in financing its debt -- and at a higher cost with much higher interest rates."