Other nations hold a record 52% of it, leaving U.S. economy vulnerable.
For most of U.S. history, the national debt was something that America owed itself. What was borrowed by the government was lent by its people. The liabilities of one were the assets of the other.
But that has changed as the federal government has increasingly looked abroad to finance its prodigious borrowing. Foreigners now hold a record 52% of the government's $4 trillion in outside debt, up from a quarter in 1995.
Later this month, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke will go to China to ask the Chinese whether they could see their way clear to buy fewer IOUs and more iPods, Boeing jets and such.
There is nothing inherently wrong with foreigners owning American debt. In fact, these and other investments pouring into the USA help keep interest rates relatively low and the dollar relatively strong. To some degree, these investments reflect confidence in the American economy. But the very things that make this infusion of cash attractive also spell trouble.
The growing reliance on foreigners, in many cases foreign central banks, reflects a nation digging itself further into debt and denial.
Perhaps the best comparison is the many credit card offers that come in the mail each month. In the short run, by making borrowing so easy, they can prop up living standards. In the long run, the bills come due.
The foreign money is no different:
* It postpones the day of reckoning, allowing U.S. policymakers to act like bankrupt shopaholics, running up debt to pay for tax cuts and new programs while leaving it to another generation to repay.
* It props up the nation's other deficit — its chronic trade deficit. The purchase of treasury bills is part of a broader trend of foreigners recycling their dollars back to the United States to invest in everything from government debt to the home mortgages, instead of using them to buy more American goods and services.
* It makes the U.S. economy hostage to the whims of foreign investors, including governments. Eventually, they could decide they have better places to invest than in U.S. debt securities. This might be a gradual decision. Or it might not be. If the latter, it would cause a surge in interest rates (because the Treasury would have to offer more enticing terms to attract buyers) and trigger a recession.
Many developing nations buy treasury bills not because they are deemed to be the best investment, but to support their own monetary polices. The Chinese, for instance, do so as part of a strategy to keep their currency artificially low against the dollar. This holds down the cost of Chinese goods, helping the Chinese economy but making U.S. goods less competitive.
The problem needs to be attacked from a number of fronts. The government needs to borrow less. And foreign holders of all of these IOUs need to realize that a gradual diversification of their portfolios would be in everyone's interest.
If that happened, maybe our products, rather than our debts, would be our leading exports. Wouldn't that be nice?
posted
All I know is that his liberal economic spending and debt has benefited Europe more than any. Your worthless dollar is helping to fuel our strong economy and the strong economy of China.
Thank you, Mr. Bush.
Posts: 348 | From: Amsterdam | Registered: Oct 2006
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quote:"But that has changed as the federal government has increasingly looked abroad to finance its prodigious borrowing. Foreigners now hold a record 52% of the government's $4 trillion in outside debt, up from a quarter in 1995."
Surely some blame lies with Bush for not changing our stupid financial policies with China, but I seem to recall another jackass before Bush Jr. that started our idiot financial policy with China, and the Libs supported it back then.....
So what has changed their minds? Surely the fact that things have gotten out of hand, I would hope. Maybe the Libs have finally realized we are ruining ourselves, and China is helping us, gladly. Still they cast the blame on Bush.
Why does Bush take all the blame for this "crisis"? Why bash Bush but not Clinton?
I guess it's easier for the Libs to bash Bush and make him the scapegoat than to contribute to a solution for the problem at hand.....
-------------------- One is never completely useless. One can always serve as a bad example. Posts: 2430 | From: CA | Registered: Jun 2005
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By Thomas W. Lippman Washington Post Staff Writer Friday, August 20, 1999; Page A9
Campaigning for the presidency in 1992, Bill Clinton accused his incumbent rival, George Bush, of coddling dictators in China and sending "secret emissaries to raise a toast with those who crushed democracy" in Tiananmen Square. Now the shoe is on the other foot.
George W. Bush, son of the former president and front-runner for the GOP nomination next year, has reopened the China issue with a blast at Clinton. In a television interview last weekend, he said Clinton "made a mistake [in] calling China a strategic partner" and "sent bad signals" to Beijing about U.S. policy toward Taiwan.
"We need to be tough and firm" in the face of Chinese threats to use force if necessary to prevent Taiwan from declaring itself independent, Bush said on the CNN talk show "Evans, Novak, Hunt & Shields." He said China should be viewed as a "strategic competitor," not a "strategic partner."
Quayle Attacks Clinton's China Policy By David S. Broder Washington Post Staff Writer Saturday, March 20, 1999; Page A5
In a toughly worded foreign policy speech, former vice president Dan Quayle yesterday moved sharply away from the "engage China" stance he had taken in the Bush administration and accused the Clinton administration of "appeasement" of Beijing.
The prepared text of Quayle's address to the Los Angeles World Affairs Council, made available by his presidential exploratory committee, aligned Quayle with others in the GOP 2000 field who have taken a hard line toward China. Implicitly, it opened a possible area of debate with Texas Gov. George W. Bush, son of the former president.
Quayle was emphatic in shifting his stance from the policy he had defended for four years as vice president.
"Most of us, certainly President George Bush and I, believed that a policy that encouraged trade, with a minimum of sanctions and sanctimony, would more likely move China toward policies of greater freedom for its people and a more productive relationship between our two countries," he said. "I think it was a worthy objective, but upon reflection, it is clear to me that the Chinese took advantage of that opportunity."
"The situation is far worse today," said Quayle, citing what he called "a continued decline in human rights, an increase in religious persecution . . . threats against Taiwan . . . espionage involving our most critical secrets."
He blamed the deterioration on "a failure of will and leadership" by President Clinton. About the suspected Chinese infiltration of the nuclear weapons lab in Los Alamos, N.M., Quayle declared: "How dare [Vice President] Al Gore blame presidents Reagan and Bush for negligence that clearly happened on his and President Clinton's watch? . . . It is high time this administration start accepting responsibility for its own actions." Within the past two weeks, the administration has revealed that since 1995 it has been investigating espionage that may have occurred at the labs in the 1980s. Critics contend it has been laggard in remedying the situation, and several other candidates with whom Quayle is vying for support – notably Patrick J. Buchanan and Gary Bauer – have gone further than Quayle in urging retaliation against China.
Quayle portrayed himself as someone who wishes China well, noting that he has visited that country three times since leaving office and has a Mandarin-speaking son living there. But he condemned Clinton for tilting his policy toward Beijing and away from Taiwan. He stopped short of advocating an end to normal trade relations with China but said, "at a minimum, we should insist that trade with China be conducted on a level playing field."
posted
Well, glass..., if you are incluing the likes of NR in that "people, it ain't ever gonna happen toward the republicans. He's like dubya, always dodging the facts and saying the democrats are responsible.
If you declared Bush' feces stunk, NR would come charging up and insist you forgive dubya, but blame it on the democrats for letting dubya dump it on the lawn..
Posts: 11304 | From: Fort Worth, Texas | Registered: Mar 2005
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quote:Originally posted by glassman: HA! Bolton Resigns ...
you see Nirvannah? there's no neeed for you furrinners to be rude to Americans...
we have the reins back in our hands again... for now...
Well cheers to that. It appears the US is now moving in the proper directions. And it also appears your dollar may be finally getting some relief in the next few weeks.
But it is still too expensive for you Americans to come to Europe so please stay home.
Posts: 348 | From: Amsterdam | Registered: Oct 2006
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posted
Well Nirvana... it's obvious you love your Euro. Once it is more than 5 yrs old we will see if your governments start playing with it too.
-------------------- No longer eligible for government service due to lack of tax issues. Posts: 5178 | From: Up North | Registered: Dec 2005
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STRASBOURG, France. Is it a sensible idea to move the site of government every three weeks? This is precisely what the European Union does every month, since much of its government moves back and forth -- with great wagon trains of trucks carrying government papers (and the luggage of the European parliamentarians) -- between this picturesque city in the Rhine Valley and Brussels, Belgium.
Not only have the Europeans been unable to agree on having one capital city for the EU, but they are split on almost every major issue, making the political differences between the major parties in the U.S. seem almost inconsequential. The fundamental disagreement is to what extent Europe should move away from the "social market economy" model that has left France, Germany and Italy in economic stagnation and towards a more classic market economy such as that practiced in the U.S.
The EU has roughly the same GDP as the U.S. -- each producing almost 30 percent of the world's GDP. But the EU has a third again as many people as the U.S., and hence the average European only has about two-thirds the income of the average American. The 25 nation EU, taken as whole, is America's biggest trading and investment partner, far outstripping China or Japan. Thus Americans and Europeans have an enormous interest in each others' economic well-being, because an economic "cold" on one side of the Atlantic will almost always be "caught" on the other side.
Europe has been growing at roughly half the rate of the U.S. for the last two decades, which is not good for Europe or America. However, within Europe, there are considerable disparities in growth rates between countries. Those in the center -- France, Germany and Italy -- have barely grown, while those on the edges -- Ireland, Spain, Britain and the new EU member transition countries in Central and Eastern Europe -- have been for the most part doing very well. These growth disparities are causing increased tension among the 25 EU member states, and may even result in the currently strong Euro -- which is the common currency of 12 European countries -- becoming dysfunctional.
The "Polish plumber" has become the metaphor for the philosophical split in Europe. France has all but closed its doors to allowing workers from the new Eastern European EU members to get work permits, on the misguided notion that these highly motivated people will take jobs from French workers. Britain, Ireland, Sweden and others have taken the opposite tack and welcomed the new workers from Poland, Lithuania, Slovakia and so on, because they understand that more people working productively create more wealth and hence more jobs. The result is Britain has an unemployment rate of only 4.7 percent, even though it has absorbed more than 200,000 new workers from Eastern Europe during the last year, while France and Germany have more than 10 percent of their workforce unemployed, despite (or actually because of) their restrictive work practices.
Europe is also split on trade policy. While many of the European countries understand that freer trade leads to lower prices and a higher standard of living, some countries, again notably France, are resisting. This past week, the French vetoed reducing farm subsidies, despite offers from the U.S. and some European countries to do so on a multilateral basis. This was highly hypocritical, given their calls for others, particularly the U.S., to give more foreign aid from coerced taxpayers. The best foreign aid would be to give African and other farmers from low income countries the opportunity to sell their goods in the rich states -- but the French, again, said "Non."
The high growth countries of Europe understand that high taxes, particularly on capital and labor, kill incentives and lead to economic stagnation. France, Germany and some others, fearing productive tax competition, have pushed for "tax harmonization," which is nothing more than a code word for a high tax cartel. The outcome of these tax and regulation struggles within Europe will determine whether Europe as a whole remains one of the two great economic powers on the globe, or slowly slips behind China and the other Asian countries.
Last week, in a chateau near Strasbourg, a small group of U.S. and European business leaders had a two-day meeting with representatives of several European free market activist groups. The goal of the meeting was to share ideas on how to encourage European political leaders to undertake more pro-growth economic policies so modern day Europe does not follow the fate of the Roman Empire. Looking at Germany, France and Italy, the pro-growth leaders found plenty to be pessimistic about. But they also understood that in times of crisis real change for the better can take place, which is why they are willing to spend time and money to help convince millions of Europeans to save themselves.
Richard W. Rahn is director general of the Center for Global Economic Growth, a project of the FreedomWorks Foundation
So suck on that...
Posts: 2634 | From: The highway | Registered: Feb 2004
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