Well, here are the numbers, courtesy of the U.S. Department of Treasury (in billions of dollars):
As of April 2009, the United States government owed mainland Chinese investors $767.9 billion, and Hong Kong investors $78.9 billion for a total of $846.8 billion.At that point in time, the total national debt stood at $11,238.6 billion (or $11.2 trillion). The largest holders of U.S. debt were other federal agencies, e.g. Social Security and Medicare. But those two agencies have almost peaked as investors in Treasury bonds. Soon, they will start redeeming their holdings, which currently amount to $4.3 trillion, to offset revenue shortfalls. That process will unwind over the next three decades.
Who, then, will pick up the $1.8 billion in new debt stemming from this year's deficit? We have no choice but to turn to foreigners, who already own roughly half the private (non-U.S. governmental) debt today. For all practical purposes, that means China and Japan, which are by far the largest holders of T-bills. The Europeans, once prominent among buyers of U.S. Treasuries, are relatively insigificant now. Furthermore, European nations, which are running massive deficits of their own, are soaking up a lot of capital, so it's hard to imagine them entering the picture in a big way.
It's an open question how much appetite the Chinese have to incur more U.S. debt. According to Forbes magazine, the country has invested more than half of its $2 trillion worth of currency reserves in U.S. treasury securities and other government bonds. Fears are increasing among many Chinese observers that the U.S. will hose them by printing money, cheapening the value of the dollar and making that investment worth less.
If the Chinese don't step in and buy U.S. debt, who will? Possibly U.S. investors, now that the Americans' savings rate is creeping higher from its near-zero level of a year ago. But if Americans don't pony up the tens of billions required, Treasury may find it necessary to raise interest rates. That's not what our economy needs now -- and it won't exactly help the U.S. debt burden. Interest payments on the debt already exceed $450 billion a year. An up-tick in interest rates will drive that number higher.
Rising indebtedness, skittish foreign investors, climbing interest rates, and escalating interest payments that drive up debt payments and deficits even more... Let us hope that vicious cycle doesn't spiral out of control.
.jpg)
Well, we could pay it ourselves, but it would mean higher taxes. We are going to pay it sooner or later, anyway.
ReplyDeleteWhat happens when your credit card company and bank say - "no more"?
ReplyDeletethat's what will happen to the U.S.
In a way... the Chinese and Japanese are subsidizing our loans... the same way a Bank would offer you money at 2% until you ruined your credit rating and now can't get it for 20%.