All Entries Tagged With: "Japan"
Who Owns The U.S. Debt?
Right now, U.S. debt stands at just over 11 trillion dollars and it’s growing everyday. Many are coming to understand that the ballooning debt is going to cause adverse reactions in the domestic economy, despite claims to the otherwise by folks like Ben Bernanke and Paul Krugman. However, it’s not only domestic affairs that will be affected.
When the U.S. sells debt security to a nation or institution it is also selling its leverage on the international stage. For example, you and I might be staunchly opposed to the way China treats Tibet. President Obama and Secretary of State Hilary Clinton might be just as opposed to it on a personal level as well. Yet, in order for President Obama to actually fund some of the things on his ambitious domestic agenda (like education) somebody has to buy the debt that will result from that spending. It’s much like any other loan you would get – except in this case, the U.S. “prints” money in the form of some type of security, China might buy it up because it has a guaranteed return, the U.S. government can then spend that money on some domestic program in hopes of jolting the economy into better shape (though those hopes are usually short-sighted), eventually the government gets a return on that investment in the form of tax revenue, and finally (in theory) pays back China with interest as a way of saying “thanks for funding our growth when nobody else could spend the money”.
