Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

U.S. Federal Debt Issuance: Risks Ahead

by Monday, September 28, 2009


This chart shows the U.S. federal gross debt issuance, the sum of debt refinancing and fiscal deficits, as a percentage of GDP. The U.S. Treasury must issue debt to finance expenditures in excess of receipts as well as to pay off debts that are due. Although it is often assumed that debtholders will recycle their capital into new debt, they have no obligation to do so. Concerns about the level of federal debt and the size of future deficits may make creditors reconsider their investment choices. If many creditors opt out of the U.S. treasury market as their bonds mature, the U.S. Treasury may have a difficult time finding buyers for the unprecedented level of issuance. This would create a complicated trade-off for the Federal Reserve between higher interest rates, which may smother a budding recovery, and monetizing the debt, which may stoke inflation and pose a serious risk to the dollar. Read more »

China’s External Investments

by Monday, September 21, 2009


This chart shows China’s overweight or underweight observed external investment position since 2000 in a given sector relative to that sector’s share of world market capitalization. A positive number indicates that China is overweight in a given sector; a negative number indicates that China is underweight. As the chart below shows, China is most overweight in materials and energy. This reflects a desire for stable economic growth, which, in the Chinese government’s view, requires a secure source of inputs. As other sectors in China develop, along with the managerial skills required to integrate international acquisitions, China’s aggregate portfolio allocation will likely even out. Read more »


by Friday, September 11, 2009


In a typical post-war recession, recovery would be well under way after twenty-one months. This time around, all that has emerged is limited optimism over ‘green shoots.’ Although conditions in financial markets have improved (e.g., the spread between AAA corporate debt and treasuries has narrowed by over 150 basis points since November 2008), the labor market has continued to deteriorate. The chart below indicates that the increase in unemployment since this recession began is worse than all post World War II recessionary spikes in unemployment. Read more »

The Great Inflation Debate

by Tuesday, September 8, 2009


The Federal Reserve responded aggressively to the economic crisis with unconventional monetary policy measures. These measures have vastly expanded the size of the Fed’s balance sheet, leading to concerns over future inflation. Chairman Ben Bernanke has argued that the Fed has the tools to fight any uptick in inflation; for example paying interest on reserves. But it is not only the size of the Fed’s balance sheet that has changed; its composition has changed as well. As the chart above illustrates, the Fed is now holding riskier assets, such as mortgage backed securities, that may prove difficult to unwind in a timely fashion. Read more »