Net Borrower

A net borrower is an entity that borrows more than it saves or lends out. A net borrower could be an individual or company, but it usually refers to a government that finances a fiscal deficit or a country that finances a current account deficit.

A government at any level takes in revenue in the form of various taxes and fees to spend on running its services and financing capital projects. If revenues fall short of expenditures, the government must borrow mainly by means of issuing debt. At the federal level, the government does have money in its treasury and it also holds a portfolio of debt assets for investments, but since its issuance of debt is greater than these combined, it is a net borrower.

Similarly, the U.S., because it runs a chronic and substantial trade deficit, is a net borrower as a country. Year after year the U.S. imports more goods and services than it exports, which forces the country to borrow increasing amounts from abroad to maintain the balance of payments. The current account deficits are attributed to excessive American consumption, fewer competitively-priced goods (which may or may not be connected to exchange rates), fewer competitive goods in terms of quality and undisciplined government spending on foreign goods. The U.S. sells Treasury securities to foreign nations to finance the trade deficit, which has averaged over a half trillion dollars per year over the last 10 years ending 2017.

Debt financing is an appropriate way to run a household, a business, a government or a country as long as it is done responsibly. A household that borrows beyond its means may end up losing its house; a business that is highly leveraged may find it difficult to pursue growth opportunities when the economy is strong or may find itself in a financially distressed state when the economy is weak; a government or a nation that carries a heavy debt burden will expose itself to rising interest expenses on its debt and more costly refinancings when it is time to roll over debt maturities. Moreover, for the U.S., being a net borrower to countries with which it may not see eye-to-eye on key geopolitical issues is not an ideal position. The U.S. is a debtor to many nations around the world. These creditors, by holding large amounts of Treasury securities, have a degree of power over interest rates in this country and therefore potential influence on the economy as a whole.