New York Fed: The Declining U.S. Reliance on Foreign Investors (that's not necessarily good)

From the Federal Reserve Bank of New York's Liberty Street Economics blog:

The United States has been borrowing from the rest of the world since the mid-1980s. From 2000 to 2008, this borrowing averaged over $600 billion per year, which translates into U.S. spending exceeding income by almost 5.0 percent of GDP. Borrowing fell during the recent recession, as would be expected, and then rebounded with the recovery. Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997. A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.

    The amount borrowed from the rest of the world is measured by the current account balance, which is the broadest measure of cross-border transactions. As seen in the chart below, the United States was spending substantially above its income before the recession, to the tune of 5.8 percent of GDP in 2006. The amount of borrowing fell during the recession and started to rebound in 2010, but borrowing has since trended down.



    A nation’s foreign borrowing is the difference between domestic saving and investment spending. Consider simplified national accounting identities with income allocated to consumption or saving and spending allocated to consumption or investment. Dropping out consumption from both identities shows that the difference between spending and income is the same as the difference between saving and investment spending, with the gap determining whether a country is lending to or borrowing from the rest of the world. That is, a country borrows from the rest of the world when it does not save enough to finance its own investment spending. From this perspective, the United States is borrowing less because the difference between saving and investment spending is shrinking. ...MORE