From the Washington Times:
Some lawmakers and market analysts are expressing rising concerns that a demand for capital by earthquake-ravaged Japan could lead it to sell off some of its huge holdings of U.S.-issued debt, leaving the federal government in an even tighter financial pinch.
Others say a major debt sell-off by Tokyo is unlikely, but noted that the mere fact that questions are being raised speaks volumes about the risks involved in relying so heavily on foreign investors to fund U.S. debt…
I don’t foresee a big sell off of US debt by the Japanese – after all, the debt they hold is generating revenue for them while a sudden, large liquidation of US debt would cause all sorts of financial problems which would gravely impact the global financial system, thus harming Japan (the thing about our debt is that it only makes it seem like our bond holders have us over a barrel…really, its quite the other way ’round: they can’t afford anything bad to happen to us…we really are “too big to fail”). The more realistic worry is that Japan simply won’t buy as much of our debt as they normally do – and this would be natural: having a high bill to pay for reconstruction, the Japanese will just spend their money rather than “save” it by purchasing US bonds. This, though, will greatly lower demand for our bonds and that would force us to pay higher interest to sell them, thus putting a definite crimp in our already strained finances.
It must be remember that the entire financial system of the world is insolvent. The entire thing is underpinned by debt which simply cannot be repaid. My earlier piece about Portugal’s problem just starkly illustrates it – how are 10 million people to repay $99 billion in debt while also finding the wherewithal to cover all their other expenses? It just isn’t possible. Greece, Ireland, Italy and Spain are all in the same boat…with the UK and France right behind them. Right now, with our debt still slightly less than our GDP we can barely manage it…but add another 5 or 10 trillion dollars to the load and we will not be able to do it. Some calculations already have it that the total debt – including the unfunded mandates of SS and Medicare – exceed all the dollar-denominated wealth in the world. Be that as it may, there comes a time when you have far too much debt to discharge. You go bankrupt, as it were – unless you pull back in time. Given the trouble we’re having in passing a mere $60 billion in cuts, we’re not at all pulling back.
The fact that an earthquake in Japan has awakened such existential concerns about the ability of the United States to finance itself tells the tale: financially, we are doomed if we keep going as we are. I’ve lived 46 years and have witnessed all manner of natural disaster hit the world. This is the first time I’ve seen one come close to knocking the whole world in to a Depression – and it is easy to see how just one more might do it. We must change, and we must change right away. We’ve only got a few years left before complete disaster.
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