Misc. Ramblings

It's no secret that the lifestyle of the average US citizen is being financed by foreign banks (see especially "Ownership of Federal Securities", 8MB Word document, Table OFS-2, column 11). The trade deficit, the difference between what we buy from other countries versus what we sell hit a record in February of $61 billion. As the US government, that is you and I, runs up a deficit for this year alone of $477 billion, a 10-year cumulative deficit projected to be $2.4 trillion dollars, and the current total debt of $7.8 trillion, this article says Asian markets are becoming afraid.

The problem is, if the foreign banks (mainly China and Japan) panic and start dumping dollars, the impact on the economy of their biggest customer (i.e., the US) would be negatively affected. If that happens, their customers won't be able to buy the stuff they sell.

So, strange at it may seem, the Asians are in a bind. They can't keep funding record US borrowing forever. But if they cut off funding too abruptly, Bad Things happen. So they must walk a narrow path wherein they gradually reduce their buying of US debt (in various forms such as US Treasury securities) while not reducing it too quickly.

But whatever the Asians do, there will be an impact on the US economy. Interest rates will go up. It is inevitable in an economy dominated by debt and a Republican dominated Congress intent only on spending as much as they can, as quickly as they can, that the cost will eventually have to be paid. That time may be now.

Aloha!