US Federal Budget and US Trade, the ‘Twin Deficits’

Evil Twins: US Federal Budget Deficits and US Trade When the US runs both federal budget deficits and current account deficits, in effect the US federal government is borrowing from foreigners (who buy US Treasury bonds and other US assets) in exchange for imported foreign-made goods. Phrased another way, the US exports bonds (IOU pieces of paper) and imports foreign-made goods for domestic consumption, worsening the trade deficit.  One hears little today of the US “twin deficits,” a phrase familiar during the 1980s when the US had consistently run both federal budget deficits and international trade deficits. Economists hypothesized at…