Foreign Financing of US Government Debt

Economy In Crisis ^ | 3/4/06 | U.S Federal Reserve

[maica]

Exactly, and this smooth highway does not appear anywhere on a balance sheet, but it is a vital part of our 'trade' balance.

Perhaps if a country's annual financial report included "services" as well as "goods" traded, our balance would be hugely positive. Doom and gloomers would have less to worry about.

One of the "services" we export to the world is our philosophy of increasing freedom everywhere. Quite the intangible asset, but real nevertheless.

[ChessExpert]

Ditto to posts 49 & 61.

If folks want to reemphasize Federal (and state) spending restraint, outside of Defense, I'm all for it. How about axing NPR and Public television? It's not many $ but it's a start. I am disappointed by the extended drug coverage for seniors. That's going to cost! No new entitlements!

Tax less, spend less, regulate less.

Think about regulation. Alaska has the highest unemployment rate. Perhaps if allowed them to pump oil from ANWR, good things might happen. Nuclear energy is safe but the legal/political threat has stopped construction cold for 30+ years. Generally, unnecessary environmental burdens are costing our economy big time. Maybe the EPA could use a major makeover.

At the State and local level, a tremendous reform would be to privatize the schools and go with a 100% voucher program. That would get governments out of the business of providing so-called education.

[snowsislander]

Perhaps if a country's annual financial report included "services" as well as "goods" traded, our balance would be hugely positive. Doom and gloomers would have less to worry about.

We do run a small surplus in services. From the BEA's February 10, 2006, "News Release: U.S. International Trade in Goods and Services":

Services

For 2005, exports of services were $378.6 billion, up $34.7 billion from 2004. Increases occurred in other private services, which includes items such as business, professional, and technical services, insurance services, and financial services ($10.0 billion); travel ($9.0 billion); royalties and license fees ($5.2 billion); other transportation, which includes freight and port services ($4.5 billion); transfers under U.S. military sales contracts ($3.5 billion); and passenger fares ($2.5 billion). U.S. Government miscellaneous services were virtually unchanged.

For 2005, imports of services were $322.2 billion, up $26.1 billion from 2004. Increases occurred in other private services ($9.9 billion); other transportation ($8.1 billion); travel ($3.9 billion); passenger fares ($1.8 billion); royalties and license fees ($1.4 billion); direct defense expenditures ($0.8 billion); and U.S. Government miscellaneous services ($0.1 billion).

For detailed descriptions of the types of transactions included in each of the services categories, see "Information on Goods and Services" starting on page 26 of this release.

The surplus in services came to $56.3 billion in 2005, and it was a welcome increase from the previous declines in that surplus that we had seen. However, that surplus of $56.4 billion pales against the $782.1 billion deficit that we had in goods. (Which itself was a very unwelcome increase of $116.7 billion from 2004's $665.4 billion goods deficit.)

[maica]

I am writing about the intangible, unmeasurable, services that we offer to the world, such as the satellites that are enabling the entire world to communicate instantaneously, for example.

[snowsislander]

I am writing about the intangible, unmeasurable, services that we offer to the world, such as the satellites that are enabling the entire world to communicate instantaneously, for example.

For what it is worth, the commercial satellite business is quite healthy; in fact, our government is critically dependent on it, and it is part of our PDD-63 critical infrastructure planning.

From the GAO's report Critical Infrastructure Protection: Commercial Satellite Security Should Be More Fully Addressed:

The commercial satellite industry is a global industry that includes many foreign-owned corporations as well as partnerships between U.S. and foreign corporations. As a result, the U.S. government depends on foreign and international companies. For example, some commercial space systems of foreign origin are used by the U.S. military for imagery and communications support. NDIA reported that foreign ownership of satellites is expected to grow and predicted that by 2010, 80 percent of commercial communication satellite services could be provided by foreign-owned companies. This globalization of the satellite industry could affect the availability of commercial satellite systems to U.S. government or commercial entities through frequency allocations, tariffs, politics, and international law.

[ChessExpert]

The original post looks as though the facts are from the U.S. Federal Reserve. However when I followed the link it took me to economyincrisis.org - not to the Federal Reserve. "EconomyinCrisis" is well named as it seems to be a "the economy is going to hell in a hand-basket" website. The Chicken Little post (2) may be apt after all.

My question is: Why does the original post have any mention of the Federal Reserve?

[Energy Alley]

while I am absolutely disgusted with the present economic policies so far as the debt goes, I am not that worried about the big lenders.

Say China were to call their loans, the US economy would be a smoking crater. Then who will buy all the Chinese crap at Wal-Mart?

I would certainly appreciate some pressure on Washington to get the house back in order, but I don't think China or Japan have much desire to destroy their own economies in the process.

China and the US are in a mutually beneficial relationship, we need their cheap crap and they need our money. Cut off one end and both sides collapse.

[Energy Alley]

that certainly seems to be the vibe I have been getting from alot of people here.

[hawkiye]

"“Free Trade” systematically destroys our ability to produce products competitively

Isn't there a "Perot for President" rally you should be attending, or a shop stewards meeting, or something?

Also, the lead article on your link is by Thom Hartmann whose own webpage describes him as a Democrat, a liberal and a progressive.

Time for some better economic research."

Let me get this straight you are disputing the numbers from the page I posted even though they are from the federal reserve because you found an unrelated statement and article you don't like?

And since you don't want to deal with the facts of the numbers you try to falsely characterize me based on that?

Here's a novel idea; why don't you give me a specific example of whats wrong with the research instead and perhaps then we can have some meaningful conversation.

[hawkiye]

"The U.S. is the soundest debtor in the world. The U.S. will not default; will not nationalize; and keeps creating wealth at a more consistent extent than any other country. If a nation owed me money I would want it to be America."

So according to your logic Wealth equals a large debt? Hmmm I must of missed something in economics 101. I always thought if you created more wealth then any other country you didn't need to go into debt but that other countries would want to borrow from you...

But what do I know I guess it is now considered conservative to go into debt exponentially and call it investing in the economy and creating wealth even though our creditors pull alot of those dollars out of our economy giving the fed excuse to print more but someone said hey there is no inflation and of course we will never default on our debt we are the wealthiest nation on earth because we have the largest debt owed on earth.

And of course the politicians keep asking for more taxes and assesments to pay the ineterest on the debt er ah I mean create more wealth because we certianly don't want to loose our wealth by getting out of debt right? Of course all of you who have enlightened me to real conservatism balance your check books and bank statements exactly the same way right? By borrowing more money er ah I mean creating more wealth right?

[antaresequity]

How do we reign this in or is it too late?

If your talking about Notes(Debt)...the market will take care of it...the market knows how to take care of it...

...also...the Yen carry is going to unwind and you will see a fall in Notes over the next few years at least...

You do realize that will lead to higher interest rates though?

[Waco]

A US Treasury Bond matures/pays interest the same for whoever owns it, whether they are US citizen or foreign. No ower can "demand" immediate pay-off of bond. But may sell it in open market at any time. Happens every business day.

[antaresequity]

The problem is that we can't balance a budget. That should be the focus of your concern.

The biggest source of debt demand is our the trade surplus that other nations have with us...they recycle the excess into our debt...and have done so eagerly.

Another source of debt demand has been the net zero interest Yen based rates.

Other countries, corporations and individuals with gobs of cash (Think Arab Sheik) convert to Yen and buy our debt...to take advantage of the interest rate differential.

Our politicians have just kept spending knowing that their very policies are creating both a debt and trade deficit domestically...and the cycle has been spinning wildly since the late 80's..

A whole lot of things are going to change in the coming years with China gobbling up resources, interest rates worldwide on the rise...and according the street (herd), our interest rates are going to flatten out...

If there is flight from our bonds, the fed is going to have one hell of a time trying to keep interest rates flat...

The ten year is sticking its head above a 4.7 yield to have a look around for the first time in about a year...many think this is the critical yield resistence to get through...imho ten-years are headed to 5.0+ easily this year...and higher yet after that...

[maui_hawaii]

Total debt is in the area of 4.5 trillion.

China holds about 250 billion of that.

Do the math and it works out to about 5% or so of the sum total.

Japan owns about 15%.

My question is, too late for what?

If China 'dumps all of its debt' what happens? Life goes on, thats what. It will be a blip on the radar.

If your question is why does the government keep spending money they don't have... thats a whole different question.

[OwenKellogg]

Hawkiye, I didn't say:

"Isn't there a "Perot for President" rally you should be attending, or a shop stewards meeting, or something?"

I did say:

"Also, the lead article on your link is by Thom Hartmann whose own webpage describes him as a Democrat, a liberal and a progressive.

Time for some better economic research."

... but nowhere in my comment did I dispute the numbers. But you say:

>> "Let me get this straight you are disputing the numbers from the page I posted even though they are from the federal reserve because you found an unrelated statement and article you don't like?"

Hawkiye, you haven't got anything straight. I didn't dispute any numbers. I merely pointed out that your website of reference: www.economyincrisis.org is very suspect. There are no names linked with it -- who owns this website? The website is advocating bigger government and less freedom. It's probably safe to assume that our dear labor unions or someone related to them is sponsoring this website. It is not what I'd call conservative. So once again, I didn't dispute the numbers, I'm pointing out that "Economy in Crisis" is very suspect.


>> And since you don't want to deal with the facts of the numbers you try to falsely characterize me based on that?

Hawkiye, I didn't falsely characterize you. I characterized your link. But I did want to deal with the issue you raised about "Foreign Financing of US Government Debt". As a matter of fact I asked questions to clarify whether your issue was about the fact that Congress runs deficits or whether your issue was about how foreigners invest dollars that they earn while engaged in free trade.

But you failed to answer my question and clarify.Instead you accuse me of disputing the numbers. Quite a diversion.


>> Here's a novel idea; why don't you give me a specific example of whats wrong with the research instead and perhaps then we can have some meaningful conversation.

Hawkiye, I gave you specific examples of what's wrong with your research source. Economy in Crisis is anti-freedom and pro- big government. This website is a shill for some organization that is opposed to conservative values and the owners of the website do not have enough integrity to say who they are. It could be Michael Moore that is behind this fear-mongering, protectionist website.

[OwenKellogg]

>> If there is flight from our bonds, the fed is going to have one hell of a time trying to keep interest rates flat...

You are absolutely right. The US debt has a big destabilizing potential.

[antaresequity]

If China 'dumps all of its debt' what happens? Life goes on, thats what. It will be a blip on the radar.

It doesn't work like that...if one country is dumping the notes on the market in favor of some other haven...then you can be asured that most if not all other countries are doing the same.

This is not like a baseball league where every team is against all the other teams.

Its more like a picnic ground...when it starts raining...everyone leaves.

If the broader world market doesn't want our debt...then we have to make it more attractive by increasing yields...which creats more debt...higher payments...more debt...

Open up a bit to the idea that massive debt, increased debt service, massive trade deficits, shrinking industrial output, emerging global markets, massive demand increase for natural resources poses a tremendous risk to our capital markets and economy...

[maui_hawaii]

In order for what you say to happen there would have to be a major fundamental shift. My point was that China doesn't have arbitrary power over the US's economy because of its debt holdings.

Its not so simple as some have tried to make it out to be. There have been many rather recently on FR and in the MSM that try to whip up China fever by overstating what they can really do.

[maui_hawaii]

Basically put for your scenario to happen something major would have to force that kind of a move.

What kind of event could cause that?

[hawkiye]

"Hawkiye, I gave you specific examples of what's wrong with your research source. Economy in Crisis is anti-freedom and pro- big government. This website is a shill for some organization that is opposed to conservative values and the owners of the website do not have enough integrity to say who they are. It could be Michael Moore that is behind this fear-mongering, protectionist website.

That is not a specific example of what's wrong with the research. It doesn't matter who is behind the website it only matters if the content is accurate or not. You yourself said you did not dispute the numbers so again tell us what is wrong with the research? Disliking the messenger does not make the research wrong or bad.

PS And you did make the Pero quote I copied and pasted it directly off your post go back and look.