How does issuing treasury bonds actually help the US current account deficit when the people and not the?

Question

government are causing the money to flow out of the nation? The US government is not directly responsible for causing the deficit its people are, therefore how does issuing debt lessen the current account deficit caused by the people?

Answer 1

Issuing treasury bonds does not help with the issue of outflow of capital either from private or government sector. Issuing bonds is merely a way to balance the payment account. Think of it this way, once the money flow out of the country, (like you pulling your wallet out and start distributing your money: you will then need to make enough money to pay for the amount you spent). This is only to offset the outflow called financing the country's current account. Balance of payment must be balance: this is the first rule of the international economy.

Answer 2

The money flowing in and out of a country must be equal, so our trade deficit must be balanced by inflows of money to purchase US assets. If the US savings rate were higher then the return on US assets would be less because of the law of supply and demand so there would be less money inflows. The budget deficit contributes to the negative saving rate for the nation so contributes to the problem.
Given the actual numbers involved balancing the budget will probably not help much.

Answer 3

the protection of treasury bonds relies upon on the creditworthiness of the U.S. government. If it appears that evidently the U. S. government can not, in actuality, repay its charges (with out massive inflation, which might volume to a de facto default, because of fact the money they use to pay interest money could strengthen into practically valueless), then gold would become extra maintain. For the previous 11 years, gold has greater in fee very a lot swifter than any bonds. yet previous overall performance is often a unfavourable handbook to destiny overall performance. For those reasons, no person quite is conscious for helpful whether treasury bonds are extra maintain than gold--we will not anticipate the destiny. in maximum situations, people who purchase gold are making a raffle that our financial gadget is heading for a disaster even extra beneficial than the "super recession." If inflation kicks in, because it ought to quicker or later, then bond expenditures ought to plummet, whether the interest money proceed. on the different hand, the protection of gold relies upon entirely on the willingness of others to pay a cost equivalent to or extra beneficial than the fee you paid in finding out to purchase the gold. If a considerable variety of gold vendors settle on that gold is over-valued (in basic terms as living house customers in 2008-9 desperate that homes have been over-valued), then gold expenditures ought to plummet. Over the long term, traditionally, the main suitable hedge against inflation has been shares.