Who will finance our borrowing?

We were already pretty much dependent on the Chinese to loan us the money needed to carry our debt. We’re proposing to quadruple that debt and I wonder, who can afford to fund it? Europe’s in the tank and about to sink to the bottom. The price of oil is trimming the wallets of the Arabs and China is shutting factories and losing its jobs – 20 million so far and getting worse.

What’s the alternative? Zimbabwe has trillions of Zimbabwean dollars, but I don’t know if we want those.

4 Comments

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4 responses to “Who will finance our borrowing?

  1. Peg

    Christopher, you are such a party pooper! Health care for all! College for everyone! Bail out all who are in trouble and live for today!

    More of the hair of the dog that bit ya, I always say.

  2. Retired IB'er

    A five page interview with Niall Ferguson (Harvard prof) is worth reading in its entirety (see link below). He does a good job of summarizing the epic crash we are watching unfold real-time. He does touch on the issue of China funding US deficits; and, for the half glass full crowd, he sees two positives (among an ocean of negatives):

    “We’ve discussed two reasons to non-suicidal. I’m trying to stay cheerful. One is that Chimerica is holding up. The Chinese don’t seem to want to get divorced from their American spouse.’ [he expects China to keep funding US]

    “The other is that this isn’t leading to World War Three or Four [and my particular favorite], depending on how many world wars you think there have been. There will be instability, but I don’t see that instability producing something as huge as the 20th century conflicts.”

    http://www.theglobeandmail.com/servlet/story/RTGAM.20090223.wferguson0223/BNStory/crashandrecovery/home/?pageRequested=1

  3. Scotia

    You know, I think Retired IB’er is onto to something. Safe haven status and hence the likelihood that the US will be able to fund itself at very decent rates will help the US vs. its allies despite the US being at the epicenter of many of the problems. The fact is that the EU, home of the other potential safe haven currency, totally screwed up by expanding so quickly post the fall of communism (if not from a political perspective an economical one certainly). The EU now has the PIGS (Portugal, Ireland, Greece and Spain all of which are in real holes). I hope we get the competitive devaluation of the $ and inevitable inflation AFTER we have funded all these US deficits with very cheap treasuries. As for gold, I’m with Buffett who cannot see the logic of chasing a yellow metal.

  4. Krazy Kat

    Prior to the past 20 months, it had been my opinion that the Euro was destined to have its challenges and could come apart. Aging and non-reproducing native populations and non-assimilating and hostile immigrant populations represented one set of issues. The aging Western Europe needing the younger and more productive Eastern Europe to finance its social programs was another set of issues. And, as we are seeing now, the inability of any single country to control its own currency and interest rates meant there was little a nation could do when it needed to make monetary or fiscal changes to address local imbalances. Add in a political system as fragmented as most of Europe’s and the future was less than certain.

    Today, the issues are mostly economic but the riots in Greece are a sign of simmering disenchantment.

    A reference/safe haven currency has to be stable, even if the economy is not vibrant. Witness the relative strength of the yen over the recent past. A moribund economy but no real surprises works to the yen’s benefit. The UK Pound is getting pounded because of its small size and the awful conditions of its banks. Iceland before. Within the EU you have the PIGS (R IB’r, I had not heard that one before) which Germany and France may be called upon to save. Will they do it? Credit Default Swap spreads suggest the market is concerned.

    The conventional wisdom is that global investors will shun the dollar due to all the obvious reasons about debt, etc. However, as I have said many times over the recent past, what is the alternative? Where do large reserves go at this point? Don’t forget that the Asian and Gulf investors have US Treasury maturies every month and those have to be rolled over. Assuming those balances stay in US$, the real concern should be the incremental debt the US will be issuing. Not a small number but less then what most discuss when looked at on a “net” basis.

    The Dollar’s day will come, but it will not be until there is more stability elsewhere in the world. Personally, concur with Scotia and I think late 2010 at best.