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NewsFlash: June 15, 2007

US long-term interest rates rising

This quarter’s U.S. current account deficit (the broadest measure of the U.S. balance of trade in goods, services, and payments to the rest of the world) increased, according to the Bureau of Economic Analysis, and declining purchases of U.S. Treasury bonds have contributed to rising interest rates.

Today’s International Picture , by EPI economist Robert Scott, illustrates the relationship between the current account deficit and interest rates.  As of the first quarter of this year, the United States now spends $770 billion more that it produces.  The United States covers that debt by selling assets, particularly U.S. Treasury securities, to foreign central banks.  Recently, some of these banks announced plans to diversify, thus reducing their purchases of long-term treasury securities.  As purchases of U.S. Treasuries fall, interest rates increase, and rates are expected to increase sharply in the future as fewer treasuries are purchased.

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