For a long time, I've argued that government borrowing is due is large part to the corporate sector's financial surplus - its excess of retained profits over capital spending. However, today's GDP figures show that something else is also happening.
These show that the corporate sector's surplus has disappeared; in fact, in Q2, companies in aggregate ran a small deficit. However, although the declining corporate surplus has been accompanied by falling government borrowing, the latter is still large. Why?
Statistically speaking, the main counterpart to government borrowing is no longer corporate net lending but rather overseas net lending - or, to put it more familiarly, a current account deficit. It is foreigners' net saving, rather than companies', that is the counterpart of government dissaving.
Of course, "counterpart" does not tell us anything about causality. So, what is the direction of causality?
You could argue that our borrowing from overseas is caused by government borrowing. Maybe government borrowing has inflated demand which in turn has sucked in imports.
Now, whilst this has happened sometimes, it is not the case here and now. Several facts tell us as much: that UK real interest rates are negative; that there are 5.65m unemployed; that inflation is low; and that real GDP has grown only 2.9 per cent in the last six years.
Perhaps, therefore, the correlation goes the other way - it is foreigners' saving that is causing UK government borrowing. Weak demand overseas means weak UK exports which means a weak economy and tax revenues.
To put it another way, in the much of the world savings exceed domestic investment. This might be because of big oil revenues (the middle east);weak welfare states and capital markets (China) or being daft twats (the euro area). Whatever the causes, such net saving means - by definition - that someone somewhere must borrow. This someone is partly the US, but also the UK government. This explanation is consistent with the fact that UK government borrowing has been accompanied by negative real interest rates.
Which brings me to a puzzle. We British tend to blame foreigners for lots of things, from unemployment to the craptacularness of the England football team.Such blame is generally wrong. And yet when foreigners might be responsible for one of our problems (assuming the deficit to be such), nobody points this out.