The "Banker to the World" is Back

Foreigners have been lending in droves to the Federal Reserve, buying oodles of Treasury debt, and parking tons of deposits and repos into the U.S. banking system

Americans have sold almost $1 trillion of low-yielding safe assets to foreigners in 2021 to finance purchases of corporate bonds, stocks, and direct investment abroad, as well as to finance the yawning U.S. trade deficit in manufactured goods. In effect, foreign savers have been behaving like risk-averse bank depositors who support risky cross-border lending and equity investing by Americans, while also covering the U.S. import bill essentially for free.

In the first nine months of 2021, the U.S. current account deficit—the total difference between spending and income for all American households, businesses, and governments—was worth $596 billion. That reflects a trade deficit in goods worth $800 billion (dark blue bar), a trade surplus in services worth $167 billion, a surplus in investment income worth $144 billion, and about $108 billion paid out as remittances, foreign aid, and wages to non-residents (green bars). The current account deficit was mirrored by the financial account surplus, with Americans selling $1.53 trillion in assets to foreign investors while buying just $1.06 trillion of assets abroad.¹