In response to my article yesterday on the strength of the U.S. dollar being rooted in the role the U.S. plays in the global financial system, a reader asks how this phenomenon affects the deficit at home. Interestingly, the banker-to-the-world role also means the U.S. government is more likely to run budget deficits. U.S. treasury securities are the most sought-after safe asset on the planet, and the only way to create them is through budget deficits. Since interest rates on treasuries and other safe assets have trended down over the past decade, it is likely that the global demand for safe assets is not fully satiated and will therefore continue to put pressure on the U.S. government to run budget deficits. Ironically, this implies that had the Trump administration not run large budget deficits over the past few years, interest rates might be even lower today.

David Beckworth is a senior research fellow with the Program on Monetary Policy at George Mason University's Mercatus Center, and a former international economist at the U.S. Department of the Treasury.