Posted on 05/10/2003 3:47:32 AM PDT by Lessismore
With their central banks in the vanguard, Asian investors are still doing what comes naturally to them: riding to the rescue of spendthrift Americans with saddlebags full of Asian savings.
Will the generosity never cease?
Unlikely, it is argued elsewhere in our Focus pages today though, for some, the largesse must rankle given the events of 1997-1998 when the financial crisis that beset the region was described by US critics such as Paul Krugman as ``punishment'' for Asian ``sins''. Unlikely, that is, until Asia develops its own powerful currency unit and an associated debt market of the breadth and depth that will offer investors the same level of comfort offered by sovereign US debt.
The obvious attraction of using Asian savings to fund Asian economic growth, rather than shoring up American deficits, has long been debated in the region. It is a profound irony and makes little economic sense, that those savings continue to find their way into comparatively low-yielding investments in the sovereign paper of the US government, while US capital returns to the region in search of high-yielding opportunities.
But the truth, unpalatable though it may be to those who have campaigned for the creation of a competitive Asian bond market, is that Uncle Sam's promise to pay remains the most reliable promise there is. And even though the US has borrowed far more than any other customer - and is poised to raise those borrowing levels substantially this year and next - its credit remains unrivalled throughout the world.
There was a hint, in the latest accounts of the US Treasury Department, that the euro might offer some competition. In February, the data shows, European investors (chiefly central banks) were net sellers of US Treasury bonds and notes to the tune of US$7.5 billion (HK$58.5 billion) - no doubt liquidating their dollar holdings to raise euros and accounting for the strong appreciation of the euro versus the greenback in the process.
But it should come as no surprise that Asian investors stepped in to fill the void. Japan added US$5.58 billion worth of US government paper to its foreign reserves and China chipped in with US$1.8 billion.
That paper trail is now poised to grow considerably. The US government's revenue is being squeezed by lower tax receipts as a result of both a sluggish economy and President GeorgeWBush's massive tax cut plan. At the same time its spending plans are sky-rocketing - not least as a result of the bill for the Iraq war. Worst-case forecasts suggest the deficit could balloon to US$500 billion.
That means Bush will be passing a more than usually large hat around the world's capital markets this year; and for reasons we spell out in our Focus pages, Asian investors are likely to be first in the queue with offers of support.
What a crock! It's always this "Americans are bad and wasteful" nonsense. The fact is that all this time we've been doing just fine thank you, while the rest of the world has been begging us to pay their bills. The only real surge in the national debt slight and it was during the '90's when the Dems were whining that deficits were not important enough to stop their spending.
http://www.geocities.com/peteann9/debtdef.JPG
and $500 billion is what percent of the $2 trillion revenue ....and what percent of $10.7 trillion GDP?
The numbers for the chart came from www.freelunch.com and http://www.publicdebt.treas.gov/opd/opdpenny.htm. The problem is what you want to call "revenue" and what you call "spending". LBJ messed it all up when he put Social Security off budget so he could feed everyone a line about having a "budget surplus" which didn't exist. The important thing is to compare budget figures to the gdp because the relative sizes tell you if you're going overboard or not.
It is interesting how the relative size of the debt increased with Clinton until the Contract with America put a brake on some of his foolishness.
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