Foreign Debt Holders and U.S. National Debt

click to enlarge

Happy Halloween! If the above chart doesn't scare you, click on the link below and view the national debt: http://perotcharts.com/home/

Comments

[InnocentsAb...:]

It seems to me that the question should be not how much debt is held abroad, but whether this ultimately forces higher interest rates combined with expansion of the money supply.

It was the latter that seems to be the culprit in the drop in value of the dollar, but I'm wondering now if US financial system structural problems aren't likely to continue to drive peril to the non-US financial systems.

We might make a reasonable assumption that both will occur -- continued money supply expansion, coupled with a continued crumbling regulatory system. That would in term imply continued instability. So, how long will the dollar be a currency of flight to rather than flight from ?

2008 Nov 01 12:34 PM

[granger:]

Great info.

We are in trouble over the long - intermediate term. Debt, with the printing pressess on. Social programs going to strain us, Higher taxes coming. All the while, a world-wide demographic shift of purchasing power because of shear population size is going to the Pacific Rim.

The next decade is going to be rough. Inflation is coming. Just my opinion.

2008 Nov 01 11:29 PM

[OctoberFaith:]

but if our dollar gets stronger and foreign countries hold our debt, isn't it easier to pay off our debts?

2008 Nov 02 12:14 PM

[OctoberFaith:]

it will be as soon as we believe and just start doing as we should to make money today. or correct me if im wrong about my logic?

I mean if we were to take some action, what would then next occur? and then after that?

2008 Nov 02 12:16 PM

[OctoberFaith:]

We are in trouble over the long - intermediate term.

pray tell please how did you come to this assessment?

2008 Nov 02 12:18 PM

[sumosama:]

Not sure who holds the debt matters, only that there is a market for it. Certainly would be better if the debt were stabilized or shrinking, but ...

2008 Nov 03 10:54 AM

[Smarty_Pants:]

"Not sure who holds the debt matters, only that there is a market for it" - sumosama

It does matter. Our situation would be much worse if foreigners weren't buying our debt to support our deficit spending.

Suppose all foreign countries decided to stop buying US Debt. What interest rate would it take to sell another $1 Trillion of bonds when the number of buyers is small? (Hint: small demand + large supply = low price = high effective interest rate)

Worse, suppose those foreigners not only stopped buying, but actually decided to start selling. Now the US gub'mint must compete to make a deal that's better than the one those foreigners will accept. Again, new bonds will require even lower prices to outbid foreigner's bonds and that leads to higher effective interest rates.

The foreigners who own USTreasury debt are in a position to administer severe financial pain on our country simply by choosing to stop buying our debt and start selling what they already own. Interest rates in the US would shoot upward quickly such circumstances.

If you think foreign debt holders won't use that as a bargaining chip, then you are mistaken. The time will come when foreign debt holders will start calling the tune and the US will be forced to dance.

This is the price of trying to live beyond your means, via borrowing, on a long term basis.

2008 Nov 03 12:13 PM

[Matthew Rafat:]

Smarty_Pants' comment directly above is right on. I couldn't have said it better.

2008 Nov 03 04:44 PM