We've noted the anxiety deficit hawks have been promoting about our increasing national debt and dismissed it (for now). This graph, from Brad Setser, is a useful corrective to hysteria. Turns out that despite government policies, the American economy is actually borrowing less right now:
[T]he US is borrowing far less from the world now than at this time last year. ... Why hasn't the expansion of the fiscal deficit pushed the amount the US borrows from the world up? Simple. American households and businesses are borrowing a lot less, so the total amount of money that Americans are borrowing isn't rising.
That seems pretty intuitive from a countercyclical spending point of view. The whole point is to replace consumer-demand with government-demand to spur growth until the private sector can recover. While Setser observes that this puts us in the same kind of situation we were in with our borrowers circa 2006-2007, not exactly the best situation to be in given our fiscal and trade deficits, it's also not leading us to default. Even though Chinese officials are a little more cautious about investing in U.S. debt than they used to be, they are still buying our debt. That said, it's important that in his current trip to that nation, Treasury Secretary Tim Geithner is making clear that after the recession, "we will cut our deficit, and we will eliminate the extraordinary government support that we have put in place to overcome the crisis.”
-- Tim Fernholz
