Paul Krugman recently claimed we should not be concerned about whether China will continue to finance U.S. budget deficits since they are being funded by U.S. private savings:
The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.
When I read this claim back in March my reaction was that it makes sense but I also wondered if it were supported by the data.
Then presents the data:
His point? Congress and the Fed are in credit creation mode, printing money. What future does Krugman perceive that justifies this kind of debt? The future of 2003, which Krugman thinks can be recreated because we suffer no resource constraints, we simply suffer the hysterical fear of spending money.How did Keynes convince so many economists of such a theory of mass psychology?
HT Bruce Wilder
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