June 27, 2007
VALETUDINARIANS ARE HARDER TO PUT DOWN THAN FREDDY KREUGER:
The U.S. is indebted to itself (Michael K. Farr, Jun 26, 2007, Politico)
There is an unsexy but very important issue being largely ignored by the 2008 presidential candidates: foreign ownership of U.S. government debt. As America continues to operate at a deficit, and as our debt held by foreign countries increases, we lose control over our economic destiny. The successful candidate in 2008 must reduce the deficit and regain control of the economic tiller. The candidate who can successfully and simply outline a workable plan will undoubtedly win friends at the polls and on the Hill.Foreigners currently hold about $2.2 trillion, or 44 percent, of the roughly $5 trillion in total U.S. Treasury debt held by the public. This percentage is up sharply from about 30 percent in 2000 and demonstrates just how dependent we have become on foreign central banks. We believe our increasing dependence poses systematic risks to both our economy and our security.
The notion that you should use the money you have invested at a 10% rate of return to pay off the the guys you're borrowing from at 4% is many things, but sound economics isn't one of them. The real danger to a growing world ecoomy is that we may not have sufficient debt to provide the safe harbor that is needed by 10 billion people but that only one country provides. Posted by Orrin Judd at June 27, 2007 6:00 AM
Also, the deficit is plummeting both nominally and as a percent of GDP.
People say things like as our debt held by foreign countries increases, we lose control over our economic destiny all the time. They never explain how that works.
Posted by: Ibid at June 27, 2007 7:37 AMThe old saying in the lending business, "owe the bank $10,000 the bank owns you, owe the bank $10 million you own the bank." So how is it a bad thing if we owe the bank $2.2 trillion? As Argentina showed, it's not all that hard to settle for $.15 on the dollar.
Posted by: jeff at June 27, 2007 8:03 AMWhat investment yields the 10%, are you just estimating stock market returns?
Posted by: Perry at June 27, 2007 8:56 AMThis was also the big concern in the 1980s.
We survived. Prospered, even!
Posted by: kevin whited at June 27, 2007 9:09 AMJust the average on the market:
www.prudentbear.com/Waiting_for_Average.html?content_idx=46829&stage=3
Posted by: oj at June 27, 2007 9:58 AMHow can the haven be needed by 10 billion people when there ARE only about six and a half billion?
Posted by: Nathan Smith at June 27, 2007 10:14 AMIt will top out at 10 before it starts declining. The safe haven will become even more pressing a need at that point.
Posted by: oj at June 27, 2007 12:26 PMWhat is the difference between a haven and a safe haven?
Posted by: GER at June 27, 2007 2:21 PMSometimes a haven you think is safe, turns out to not be safe
Posted by: h-man at June 27, 2007 2:31 PM
Poetry.
Posted by: oj at June 27, 2007 4:17 PMThe advantage of being the world's reserve currency is that you can run trade/investment deficits pretty much indefinitely. Britain did it with the pound during the Victorian age with nary a hiccup.
Posted by: Gideon at June 27, 2007 5:16 PMAt the end of the Napoleonic Wars, Britain's debt was 250% of GDP. Mr. Farr's doppelganger was writing that it was all up for Blighty.
Posted by: oj at June 27, 2007 6:56 PMWe'll work it out but our debt, including unfunded liabilities, is about 500% of current GDP.
Posted by: fred at June 27, 2007 8:33 PMCloser to a tenth of that.
Posted by: oj at June 27, 2007 8:35 PMHow do you figure? We're talking about debt rather than deficits, correct?
Posted by: fred at June 27, 2007 8:38 PMWhat's the debt and what's the annual GDP? You do the math.
Posted by: oj at June 27, 2007 9:52 PM