Just how does America finance a $1.8 trillion deficit? The most that overseas investors ever have invested in the US in a year is $400 billion, and it is unlikely that foreign governments will purchase this quantity of Treasury debt under present conditions. Assuming (optimistically) that foreigners buy $300 billion worth of Treasuries per year, that leaves $1.5 trillion to finance. For the American private sector to finance $1.5 trillion worth of Treasury debt, or about 11% of GDP, presumes a savings rate of 11% of GDP, something America has not seen since the early 1980s. The present recession has pushed the personal savings rate up to 6%, with painful economic consequences.
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