What do you think of Roubini's observation that U.S. external debt, at roughly $4 trillion, is less than 25% of GDP? The same goes for the Japanese and the Italians. They owe a lot to themselves, but not to others.
It's sort of like owing your dad money. I can see how this can cause other problems such as malinvestment and disintermediation, but I'm wrestling with how we can 'drown'.
This does not avoid the future problem of Boomer care and pensions, the source of the $114 trillion problem.
The point is that we are rapidly coming to the circumstance when we will not be able to make the minimum payment on our debt. If those overseas getting American dollars for their exports decided to buy our bonds then that has little to do with our ability to make the minimum payment.
We don’t owe our ‘Dad’ money. We owe banks and individual bond holders money. Our entire monetary system, including trillions in paper denominated retirement savings, is based upon US bonds being worth what we say they are worth.
Look at how much debt the Fed holds. Then pull out a dollar bill and read what is says front, top and center, “Federal Reserve Note”. It’s not a “dollar”. It’s a zero interest bearing bank note. If that note becomes worthless then that is the end of oil coming into this country, gasoline being refined and trucks coming to our grocery stores with food. We go to a barter economy. Those that cant work, the old, the sick and the young, become dependent on those who can find work and there will only be a fraction of today’s working people still employed.