The United States is by far the world's largest debtor nation,
with half our debt obligations being owed to foreign creditors.
As a U.S. taxpayer, this means that an increasing portion of your taxes will go to supporting foreign governments (as interest payments) BEFORE even one penny is spent to support our own.
What a silly misrepresentation.
You have literally no idea how the treasury market works.
When I was in HS, I did a piece like this using honest statistics to show that East Germany was whipping the tail off W.Germany... ROTFLMPO ... some high schoolers never learn.
As indicated, based on data from the Economist, China has the second largest foreign debt as defined in my post, i.e., debt owed to non-residents and payable in foreign currency. There is plenty of foreign investment in the US, in Treaury bonds and in the stock market and businesses. We have the largest capital market and the place where other countries trust to place their investments and which can absorb them. Our stock market capitalization ($13.8 trillion) is larger than the next 20 countries combined.
I have no problem with foreign investment. It helps create jobs and underwrite our economy. Moreover, it gives these others countries a stake in our success and gives us greater leverage in dealing with them.
The United States - long the main engine of global growth and finance - has squandered its domestic saving and is now drawing freely on the rest of the world’s saving pool," explains Roach. "East Asian central banks - especially those in Japan and China - have become America’s financiers of last resort. But in doing so, they are subjecting their own economies to mounting strains and increasingly serious risk. Breaking points are always tough to pinpoint with any precision. Most serious students of international finance know that these trends are unsustainable...
"[O]verly extended U.S. consumers have wiped out any vestiges of saving - taking the personal saving rate down to a rock-bottom 0.6% in July 2004. In short, America is no longer using surplus foreign saving to support ‘good’ growth. Instead, it is currently absorbing about 80% of the world’s surplus saving in order to finance open-ended government budget deficits and the excess spending of American consumers.
"It wasn’t all that long ago that the United States was the world’s largest creditor. In 1980, America’s net international investment position - the broadest measure of the accumulated claims that the United States has on the rest of the world less those that the rest of the world has on the United States - stood at a surplus of $360 billion. By the end of 2003, that surplus had morphed into a deficit of negative $2.4 trillion, or 24% of U.S. GDP.
“This transformation from the world’s largest creditor to the world’s largest debtor is, of course, a direct outgrowth of year after year of ever-widening current account deficits. Moreover, reflecting the particularly sharp widening of America’s current account deficit in the past year - an external shortfall of 5.7% at mid-2004 that is already running 1.2 percentage points above the 4.5% gap prevailing at year-end 2003 - America’s net international indebtedness could easily hit 28% of GDP by the end of this year...As scaled by exports - a good way to measure the ability of any economy to service its external debt - Roubini and Setser point out that U.S. international indebtedness could be closing in on 300% of exports by the end of 2004. By way of comparison, pre-crisis debt-to-export ratios hit about 400% in Argentina and Brazil. Of course, America is far from a ‘banana republic’ - or is it?"
Roach points out that countries, like individuals, eventually run out of time, out of money and out of luck. When a banana republic slips up...it may be a terrifying event for those in the country, but for us, it is primarily comic. We laugh at triple-digit inflation rates and wonder how the big banks could have been so stupid as to lend them money in the first place.
But when China and Japan stop enabling America's credit habit, many people will fail to see the humor in it. Asset prices will fall, real rates will rise and all of a sudden, people will be poorer than they thought they were...but, of course, no poorer than they ought to be.
(Daily Reckoning, 09/29/04)