Skip to comments.U.S. debt approaches insolvency; Chinese currency reserves at risk
Posted on 12/26/2008 12:10:25 PM PST by Blogger
In a few months, America's public debt has grown to more than 100% of GDP. Fear of a valuation crisis for the dollar, with tremendous consequences for Asian countries, major exporters to the United States.
Milan (AsiaNews) - In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days (Nov. 25, 2008 ), the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.
In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP (gross domestic product) of 13.811 trillion dollars. Public debt in 2007 was therefore 76.75% of GDP. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security). By way of comparison, the Maastricht accords require member states of the European Union (EU) to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.
In 2007, 61.82%  of America's public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP. According to a study by the International Monetary Fund, countries with more than 60% of their public debt held by nonresident foreigners run a high risk of currency crisis and insolvency, or debt default. On the historical level, there are no recent examples of countries with currencies valued at reserve status that have lapsed into public debt insolvency. There are also few or no precedents of such a vast and rapid expansion of public debt.
The United States also runs large deficits in its public balance sheet and balance of trade. Families and businesses are also deeply in debt: in 2007, American private debt was equal to a little more than 100% of GDP. At the moment, it is not clear how much of America's private debt has been "nationalized" with the recent bailouts.
In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar. After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them. Chinese monetary authorities, thanks to a steeply undervalued artificial exchange rate, by about 55%, have limited imports (including food) and have achieved an export surplus. This has allowed them to accumulate a large stockpile of dollar reserves. In a currency crisis, China risks losing much of the value of its accumulated currency reserves. At the same time, pressure on imports (wheat, other grains, and meat) have led to inflation in the prices of food, the most important expenditure for more than 900 million Chinese. This is nothing more than a small confirmation of the recent statements of the pope, in his message for the World Day for Peace, where the pontiff calls the current financial system and its methods "based upon very short-term thinking," without depth and breadth (nos. 10-12), preoccupied with creating wealth from nothing and leading the planet to its current disaster. 
 See Bloomberg, 2008, 11-25 16:35:48.130 GMT U.S. Pledges Top $8.5 Trillion to Ease Frozen Credit (Table)
 In this case, exluding AIG policies, one arrives at a total equal to 429.37 of GDP.
 Cf. Economic crisis: US, China and the coming monetary storm
 Cf. AsiaNews.it 11/2/2008 Message for Peace 2009: the poor, wealth of the world; Global solidarity to fight poverty and build peace, says Pope
Would have (and did) dismiss this as tinfoil fantasy several months ago. Now, it gives one pause.
Not to worry. We have a Democrat Congress and a bozo to head up the charge against America.
I can’t wait for the super-capitalism brigade to show up and tell us how we got those Chinese fooled into taking on our debt.
It’s even worse than this report states. When unfunded entitlements are included, the real debt is over 56 Trillion (187,000 per person), which is more than the total net worth of all US Citizens.
The real debt has increased by almost 20 Trillion since Bush entered office. 5 Trillion to the reported national debt through deficit spending, and 11 Trillion by the Medicare Part D program that he signed into law. The other 5 Trillion came through the growth of the remaining entitlement programs for which there is no funding.
Before the latest economic crisis this debt was increasing by 2-3 Trillion per year. Who knows how fast it will grow now.
Interested in your take on:
Jim Rogers selling his dollars. He’s buying gold and Asian currencies and funds.
Peter Schiff (Ron Paul’s economic guy) is dumping dollars too.
See this FR thread about your posted video: http://www.freerepublic.com/focus/f-news/2130877/posts?q=1&;page=1
I agree with dumping dollars, but buying Asian assets when they are the ones who we owe this money to seems irrational to me. Am I missing something here? When we default, won’t they hurt?
“I cant wait for the super-capitalism brigade to show up and tell us how we got those Chinese fooled into taking on our debt.”
Deadheads: Free Trade, Globalism and the Grateful Dead
Tuesday, June 05, 2007
I only witnessed the phenomena once, in Eugene, Oregon about 15 years ago. The ordinary quiet college city was suddenly transformed into a vertical and horizontal display of psychedelic automotive wonder. Wed just arrived in town to visit friends and every street we turned on was full of them.
Deadheads. Adoring, if not addicted fans of the rock group The Grateful Dead, filled hand painted buses and vans. Some of them even had a passenger car welded to the top of buses going double decker. Driving pinched between the stoned drivers of these colorful unique vehicles reminded me of being a child riding along in a boat at Disneyland in the Its a small world attraction with MUCH different music and no cute dolls, just hairy pitted, sagging breasted, single minded, loud, obnoxious hippies.
Over the years, having been involved in political forum discussions, a few posters have established themselves as self anointed experts on all things economic from trade to cheap labor. Its always about the bottom line and ANY means justify that end, whether ethical, moral, exploitive or illegal, just make that dollar and take it from anyone vulnerable that you can. And anyone who dares object to being the target of such less-than-honorable economic schemes is well, just useless and annoying, at best.
They are the ones that are always for any trade deal any where on earth pushed out of the White House and congress, current and past. They dont really care what the endless mountains of pages contain save two things. Will it get them cheap labor and cheap imports? In other words can they eventually screw their own customers out of their jobs.
Globalism, not community is what matters and they dont worry about the long term. These are the same type who came to America and almost wiped out the herds of buffalo, just because they could. After the civil war they called them carpetbaggers. Thats why you never see this type in farming, crafting, building or anything that must depend on the future of a community. And they are just plain too lazy to indulge in honest work. But somehow they always manage to be in our faces to set us straight.
Deadheads. Dazed to the pain they cause in the world around them, blindly following their idolatry through town after town, leaving a trail of garbage and discontent. But they arent as harmless as the rock groupies. Our new globalist adoring Deadheads destroy industries, jobs, security, communities and lives.
And then they tell us how stupid, uneducated and unenlightened we are because we dare object that it is our pocket they are picking to pay for their instant monetary gratification.
Deadheads. Self indulgent, arrogant, rude and smelly. Theyre just lacking the pretty colors.
Its a small world, after all.
I really am not sure what currency is investment worthy. The whole world’s economy is in some way connected to us. We fail, the world has big issues. Barter system? Gold? I really have no idea. Not sure if the dollar fails and the Amero comes about that we will get in exchange for our now worthless dollars. Not an economist. Just a news watcher and don’t like what I’m seeing.
“I really am not sure what currency is investment worthy. The whole worlds economy is in some way connected to us. We fail, the world has big issues. Barter system? Gold? I really have no idea.”
Blogger, if folks were honest, they’d admit they don’t know either. I don’t know if anyone knows how this will wash out. I don’t know what to do with my money. Right now indulgence sounds pretty good! lol
What I will do, as my CD’s mature in a few days is tell the bank...”No, sorry, give me the cash. You charge people 20% interest and want to give me 1 1/2 % to lend them MY money?”
Not gonna play that game anymore while taxpayers bail out the bankers. BAH!
Well, wait no more! Here I am reporting for duty. Tell me again just why we should worry that China holds all that debt. You'll recall we didn't have to put up any collateral.
The national debt is a disgrace, I'll agree, but it matters not a bit who holds it.
Well, you could do what a lot of other suckers are doing and buy T-Bills with 0% yields. Lending your money to the same idiots who caused this problem for a zero rate of return is now being called 'safety'.
Or you could take the cash, lock it in your safe, and watch as deflation temporarily increases your purchasing power.
Personally I think the currency of the future will be the calorie. That's where I'm investing the Lurker family fortune.
I'm betting more on hard liquor, cigarettes, and gold coins.
What will happen if the U.S. goes bankrupt?
Welcome the Amero!
The Gubbamint won't have to force it on us, we will gleefully convert to save our investments.
I notice the source has an italian domain name (it). Italy’s in even worse shape. Both its population and GDP are shrinking, it finances and its politics are a mess — totally unsustainable.
Got a bit of those put back, too.
If some idiot wants to give me something valuable for cigarettes, who am I to argue.
The entitlement problem is a few years away. I don’t think there is any real debt till around 2012 on that. Future obligation will change....I have no doubt about that. Neither party can survive that sort of debt.
I don't see the Amero happening. First of all, what good does it do the US gubbermint to let Mexico and Canada in on the reserve currency game? If it was the only thing that could save us as the reserve currency I can see them trying, but do you really think the rest of the world is gonna be impressed by a US currency strengthened by Canada and Mexico?
I don't. They'll go running to the Euro or the Yen.
This is strict assumption on my part.
When I was a kid Wimpy wasn't considered to be the paragon of virtue that he apparently is today.
Interesting take, since others think who holds the debt is the problem - China and Russia. See for the first time in recent history, we've allowed our military enemies to finance our deficit.
Why don't you think it matters who holds the debt?
That's easy - because we signed on the dotted line that we were good for it. (I certainly don't consider the lender who holds my mortgage to be a sucker.)
And, if you want to be purely mercenary and talk about enforcement...well, nobody's going to be happy with the results of that philosophy.
Oh, I see. We should just default and embarrass ourselves in front of the world.
I does not matter WHO holds it just that, as a nation built on honor and laws, that we repay it as promised.
There were many of us that used to decry the outsourcing of our debt to buy trinkets. A lot of them were banned or chased off. I still think giving China, a country that IS imperialistic, all that equity in our nation.
I cant wait for the super-capitalism brigade to show up and tell us how we got those Chinese fooled into taking on our debt.........
Oh yeah. How we get the flat screen TV and all they get are green pieces of paper and IOUs
Since the whole world is inundated with worthless US Gov’t debt, I don’t think there is a safe haven except for hard assets.
Do you know that the dollar's exposure is in the euro?
I don't, but interested in learning more about currency exposure.
Read the history of the European union and the enactment of the Euro.
You might change your opinion.
halfway down the page is a chart that shows to whom the debt is owed.
This thing is far from over. We can only hope that the “bailout” works. Personally, I think the bailout was nothing more than a few fingers in the crumbling dike. The powers that be know a helluva lot more about this crisis than they’re letting on. I don’t think they really want us to know just how bad it really is.
Thanks for the link. From that data, it appears euros don’t have near the exposure of other currencies.
I wish this issue was dealt with years ago. Perhaps in the early 90’s, but the republicans then seemed to lack the necessary push. SS isn’t the huge issue (and won’t be for sometime), it’s medicare, specifically the medical costs.
My type of thinking isn’t the problem, it’s really the lack of intiative on these issues....really. I mean I do lurk a bit in this forum, and only when I hear universal healthcare do I hear the anti-roar of conservativism. But that doesn’t do anything. That anti-party is the democrats, and that absolutely shouldn’t be the conservatives.
We have everything to gain by fixing our healthcare system. Our methods differ from the liberals, but it’s the lack of intiative on the right. Liberals look to have both the political and ‘moral’ upperhand.
If we lose, say goodbye to our military/intelligience budget...say hello Euro-like US. To me this issue is as important as abortion...if conservatives spent enough effort on this issue...to really understand it and support choice-based healthcare...
Well, we would have a very secure future, both financially and against our potential enemies. So is that debt going to happen? In the short term, it will...but in the long-term, the party that supports it will be dead.
I think the dems will lose on this issue, as long as we have the guts and understanding.