The ECB is creating scarcity in risk-free bonds; this is much less the case for the Federal Reserve

The spread between dollar and euro long-term interest rates has widened in the recent period. Yet both the United States and the euro zone are running huge fiscal deficits that are being monetised by the central bank , and money creation is increasing even faster in the United States than in the euro zone. The difference between the United States and the euro zone undoubtedly stems from their foreign trade situations and therefore savings-investment equilibria: The euro zone has excess savings over investment: savers are looking to buy risk-free bonds, but these bonds are extremely scarce due to the ECB’s purchases and the excess savings, leading to very low long-term interest rates; The United States has a savings shortfall, which requires non-residents to buy US Treasuries . The Federal Reserve’s purchases are reduc ing available Treasuries , which reduces the need for non-resident purchases , but is not creat ing scarcity in the supply of risk-free Treasuries for residents, who have little savings to invest. This situation differs markedly from that in Europe.