Why Not Run $1 Trillion+ Deficits?

This is why: Analysis: High-yield and U.S. debt at risk if Japan repatriates.

The United States now stands at the brink of a debt crisis. The Obama Administration has embraced the Keynesian model of recession intervention: stimulus. This embrace has not been merely a handshake, but rather a full-on bear-hug.

The recent tragic and devastating dual natural disasters in Japan, resulting in a frightening dual environmental and public health nightmare highlights just one of the many reasons to keep public debt under control.

The article linked above may be a bit confusing if it is the first of its kind that you have read, but permit me to summarize it.

Japan owns a great deal of public debt from sovereign nations around the world. It has invested heavily not only in quickly developing nations such as Brazil, but also in the United States. As the article states, Japan holds nearly $7,000 billion ($7 trillion) in external assets; $890 billion of which are debt obligations of the United States.

With the need for Japan to recover from a $180+ billion disaster, it is quite likely that Japan will be pulling funds back into the country out of investments that it has from around the world. Even if Japan doesn’t proceed with this course of action, it’s almost a certainty that it will be a minor or non-existent partner in funding our debt for the near future until its rebuilding is complete.

All of that to say this: there is one less major investor for the United States to count on in the near future.

Who will be taking up the slack in United States debt purchasing during Japan’s recovery phase? Right now it’s anybody’s guess.

Should national tragedies affect other key investors in U.S. debt–China–it could lead to large scale issues here in the States. The loss of consistent debt purchasing by Japan will not be an easy pill to swallow, which makes it all the more necessary for the United States to get its financial house in order.

One issue President Obama hasn’t yet had to deal with so far during his Presidency is a lack of financial backers around the world. The United States has always been an excellent investment for countries around the world; a huge economy with huge resources. The U.S. cannot run huge budget deficits without someway to pay for them. Sure the United States could just print all of the dollars that it needs to pay its financial obligations, but at some point inflation takes hold and the printing press must stop. The only other way to meet it financial obligations is to borrow money from other countries.

Adding $1,000+ billion deficits every year for the foreseeable future has always been scary, but what happens when one (or more) of your best ‘customers’ doesn’t shop at your ‘store’ anymore? Not good.

–the civil commentator

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