Economic consequences of foreign countries dumping our debt?

[T Roosevelt]

Since countries like China and Japan hold so much of our debt, what would be the consequences of them dumping those IOUs on the world? Doesn't this depend on there being buyers for this debt?

[Cary]

1. They will because their populations are aging too.

This, the deficit, and our own aging population are yet another problem the right chooses to ignore.

[unblock]

2. interest rates will go up

which hurts the housing and credit markets, and also increases the federal deficit due to extra interest payments, which in turn squeezes out legitimate government spending, which in turn hurts the economy.


doesn't sound so bad, does it?

[DBoon]

3. I believe France holds a lot of our debt too

Those "cheese eating surrender monkeys" may have the last word.

[TomClash]

4. More critical is not showing up at the next Treasury auction . . .

. . . on Monday. It's not the paper they currently hold but the paper they have to buy for the federal goernment to keep running.

[bemildred]

6. Yeah, the next true reality check is the auction. nt

[brokensymmetry]

5. Lots of things, all bad.

The dollar will go down. Interest rates will go up. Disinvestment in U.S. stocks will occur, resulting in a declining stock market.

A declining dollar is likely to ignite inflation. This, along with other factors, will probably cause a recession.

Which means declining tax revenues, and thus a higher deficit, which won't be fixed....

And then we have OPEC, which was already considering switching to the Euro. If oil starts trading in Euros instead of dollars, we lose a massive interest free loan from the world to the U.S. Multiply the above adverse effects several fold.

** got the White House. I'm not sure he's going to enjoy it.

[tedoll78]

7. That's what I was suspecting.

I want Bush to suffer, but maybe not this badly..

[ejcastellanos]

8. Currency warfare

It struck me this weekend that the countries that hold a large amount of US Debt could negatively affect us. They would have the power to dump billions of dollars any time the Treasure has a sale. In a war like situation losses would be acceptable.

I realized that Taiwan is screwed. China holds too much of our debt and it limits our ability to defend them.

[ethereal]

9. Reaping what has been sown

It's going to take losing their yuppie lifestyles to wake up a lot of the incurious affluent. Too bad we have to experience it along with them.


"The NY Times quoted Ashraf Laidi, a currency analyst at MG Financial Group as saying, "foreign central banks saved the dollar from disaster. The stability of the bond market is at the mercy of Asian purchases of US Treasuries."

The current account deficit has grown so large the foreign investment coming into the United States is no longer creating economic growth. Although the United States is taking in 80% of the world's surplus savings it is all being used to finance the deficits.

According to Stephen Roach, the head economist of Morgan Stanley, the deficits are growing so large that by the end of the year America's indebtedness to other countries will reach 28% of GDP.

That would bring the US indebtedness to a level of 300% of exports. Argentina and Brazil were at 400% right before they collapsed in the 1990's.

In short, the current account deficit will soon reach the point at which it will become a problem that even bullish prognosticators like Tobin Smith won't be able to deny.

During August, foreign investors were net sellers of US equities. It was the intervention by foreign central banks that prevented a run on the dollar. We may be starting to see the first signs of a brewing crisis."

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