Foreign governments and other foreign investors could demand higher interest rates or stop buying as much U.S. debt.
By Daniel at 25 August, 2009, 2:14 am
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“Analysts say the best-case scenario on Tuesday would be if the CBO’s updated deficit forecast stays very much in line with its earlier $9 trillion estimate.
That’s because foreign investors who buy U.S. debt have already factored in that amount.
“If [the CBO] numbers come in higher, that would be cause for concern,” said Sean West, U.S. policy analyst at the Eurasia Group, a political risk research firm.
The concern, of course, is that foreign governments and other foreign investors could demand higher interest rates or stop buying as much U.S. debt.
One mitigating factor — in the near-term anyway — is the rapid rise in the U.S. savings rate over the past year. That’s because banks can make money by investing savers’ deposits in U.S. Treasurys, which pay more than what the banks have to pay customers on deposits.
“Rising U.S. savings will offset the need to find foreign investors,” said Ross Schaap, Eurasia’s director of comparative analytics.
But even domestically financed deficits come at a cost if they grow too large for too long.”
http://finance.yahoo.com/news/US-deficit-forecasts-due-cnnm-565836758.html?x=0&.v=2
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