Archive for January 24th, 2010


The False Détente of U.S. Debt

January 24, 2010

The False Détente of U.S. Debt

After World War II, the United States and Soviet Union started a series of economic, political, and military moves that resulted in the Cold War.  With both sides armed with nuclear weapons, the gravity of allowing the tensions of the Cold War to turn into a hot war could not have been higher.  Something had to change; both sides adopted a policy of détente.

Détente defines as an easing of tensions between nations or adopting policies that ease tensions.  To that end, our national debt has achieved some of détente’s objectives.  Several nations own substantial portions of the U.S. Treasury Bonds used to finance the national debt.  Adopting policies that anger one or more of our creditors is unwise, to say the least.  The problem with this is the debt is one-way.  It lacks a balance of power.

Last November, according the U.S. Treasury, our national debt was a whooping $3.6 trillion or with all the zeros – $3,600,000,000,000.  Here is a partial list of who owned our debt that month:

Country Dollar Amount Percent
China, Mainland $789.6 21.95%
Japan $757.3 21.05%
United Kingdom $277.5 7.71%
Oil Exporters $187.7 5.22%
Carib Bnkng Ctrs $179.8 5.00%
Brazil $157.1 4.37%
Hong Kong $146.2 4.06%
Russia $128.1 3.56%
(Dollar amounts are in billions)

If you count China and Hong Kong as one, we owe them close to one trillion dollars.  Two more points about the Treasury Department’s figures:

  1. Oil Exporters include Iran and Venezuela, two countries with whom we really have issues.
  2. The Caribbean banking centers have notoriously loose reporting requirements making them a prime location to deposit drug money or hide money’s true source.  The same argument applies to sources within the oil exporters too.  Our debt could be funding the very terrorists we are fighting.

Franklin Roosevelt believed a large national debt was not a real problem, as he put it “Our national debt after all is an internal debt owed not only by the Nation but to the Nation.  If our children have to pay interest on it they will pay that interest to themselves.  A reasonable internal debt will not impoverish our children or put the Nation into bankruptcy.”  Given the breakdown of investors in our debt, President Roosevelt’s thoughts are no longer true; our debt is not internal.  This is a debt we owe others.  It is long-term and our children will be paying the interests on it.

A number of economists see owing debt to other nations as a form of stability, in other words, economic détente.  We are unlikely to undertake policies that upset our major debt holders for fear of them dumping the debt and destabilizing our currency.  These same economists are quick to point out it is not in the best interest of the debt holder either to quickly dump our debt and that creates stability through “mutually assured destruction” of all economies concerned.  The problem with this thinking – it does not take into account motives other than national economic stability.

The more our debt moves overseas, the more control over our economy other governments have.  As some point, the economic cost to a particular country will not be near as high as the damage they can inflict upon us. In the case of China, if they dump our debt they hold for a loss, other nations will follow suit to limit their own losses.  Think of it as a run on a bank at a world level.  To do so throws their economy backward but they would remain stable.  Such a move will destroy ours.  As our debt grows, we no longer have balance with other nations.  We owe other nations.  When the music stops, we will be the ones left without a chair.  How much of their national debt do we own?  Without that, how was there ever balance?  How was there ever détente?

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