11-03-2020, 07:57 PM
The growing U.S. deficit raises questions about funding as China cuts U.S. debt holdings
- The U.S. deficit is burgeoning and it’s set to grow much bigger with a planned second stimulus package to beat the pandemic fallout.
- The additional costs of funding the package will have to come from issuing more U.S. Treasurys — but that raises the question of who will buy them, given that China, previously the top purchaser of the Treasurys, is cutting its holdings.
The U.S. deficit is already burgeoning and it’s set grow even bigger as lawmakers push for a second stimulus package to beat the pandemic fallout.
The additional costs of funding the package will have to be through issuing more U.S. Treasurys — but that raises the question of who will buy them. It comes amid new shifts in the geopolitical landscape, as China — previously the top purchaser of U.S. Treasurys — cuts its holdings, analysts pointed out.
“While the US economy is gradually healing, the costs of handling the pandemic are still stacking up,” wrote Kristjan Mee, a research and analytics strategist at asset manager Schroders.
He pointed out that the rolling 12-month U.S. budget deficit was close to $3 trillion as of the end of August, following the CARES Act — the first relief package aimed at tackling the pandemic which added over $2 trillion to the already large deficit.
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