Are budget deficits growing so much that foreigners could quit purchasing U.S. debt?
*Barron's, by Tom Sullivan, August 2, 2010
”EVEN AS U.S. INVESTORS AND companies ramp up investments in faster growing emerging economies like Brazil, Russia, India and China, these countries are reciprocating by snapping up record amounts of U.S. Treasuries. Total foreign ownership of Treasuries has grown to 48%, from 29% a decade ago. A nd, in a sign of their rising power, the BRICs now account for nearly a third of the foreign ownership, with China by far the biggest holder.
Some worry that having foreign countries own so much of our debt is a huge risk because it makes us vulnerable to governments whose interests don’t necessarily coincide with ours. In fact, they are badly needed to fund our massive federal debt — which has ballooned to $13 trillion from $8 trillion five years ago — at reasonable rates. There isn’t much risk they’ll dump our debt to undermine us, because they enjoy trade surpluses with the U.S. and place the excess dollars into bonds.
A bigger worry is that the yawning budget deficits continue to grow so far out of control that foreigners could quit purchasing U.S. debt or demand much higher rates.”
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