national debt usa
WSJ – Washington is silent refusing to honor the debts (22 August 2008, page A15) was an article that made me sit down and write my view of Staff U.S. "debt problem".
Successive U.S. governments are not guilty of accumulating more than 9.5 trillion remarkable treasures. Japan, Asian Tigers, and later helped China with its accumulation. If we take, for example, for Japan to quickly find why Japan is the largest buyer of assets denominated in U.S. dollars:
Japan is a net exporter. If you want to buy the materials and energy materials for their production, that users need to import U.S. dollars. When sold abroad that receive U.S. dollars, many times the value of raw materials and energy. Their country suppliers and workers have to pay yen. Therefore, they must sell dollars to buy yen. If they sell many dollars the price of the dollar-yen tends to rise.
If the price rise in the dollar yen, the price of goods exported from Japan in terms of U.S. dollars tend to increase. If they become too expensive, no one buys. If you buy, we have a recession.
To keep the dollar price of yen (USD / JPY exchange rate) low, the Japanese have to sell yen cons of dollars and the dollar store in their lockers or wages. U.S. dollars Debtor natural is the U.S. government. Everyone loves to give to creditworthy borrowers. When the U.S. government borrow, the immediate withdrawal of purchasing power of the United States is higher than it should be exactly the amount borrowed. The United States has been the driving growth in Asia for over 20 years.
U.S. duly paid all its debts as they mature. The national debt in 2008 represents over 60% of GDP year. U.S. financial system is in danger?
In my opinion, and in the administration of Bill Clinton (the guy who lead the nation in the bushes) has prepared an exit strategy. "In January, the Treasury auctioned its purpose the first of a new series of inflation-indexed securities. With his fondness offer new products cute names, Wall Street professionals have started calling these notes TIPS, an acronym for Treasury Inflation Protected Securities. " Wrote William F. Ford in ABA Banking Journal, Vol. 89, 1997 *. Today, August 22, 2008, the bond yield spread of 30-year Treasury is 4.47% for the regular duties against 2.04% of TIPS (Source: Bloomberg *).
TIPS is composed of two parts: the inflation rate and interest connected types real interest. While regular Treasury yields are fixed, regardless of inflation, TIPS pay the amount adjusted for inflation. The higher the inflation rate is going to pay for the bonds at maturity. From the standpoint of cash flows of the bonds are worth less than regular inflation is high. TIPS do not lose value if inflation rises. I choose the regular Council against bond 5 of 5 times.
In the eighties, we have seen inflation galloping over 15% in the USA. We can see again. When (I did not say if) resumed inflation, the Fed let it go until it rises above 10%. All are home markets, with the exception of products and bonds. Oil prices fall to $ 50 a barrel (which still exists 500% over 10 years, when it fell $ 10 in December 1998! – Source: WTRG Economics *), treasures and 30 years of age (prices fall 3% to yield 15%) drops to 20% of its nominal value. Source: Calculator bond yields *.
What does a smart government do? A smart government in a series of frequently asked TIPS auction around two billion U.S. dollars and slowly and quietly buys back bonds for shares of 20 cents per dollar, in place of 9.5 trillion bond of $ 2 trillion in outstanding advice. And who cares about making money kids 50 cents!
Technically, the U.S. government not repudiate the debt, although the effect is very similar. Some creditors would likely not be happy. One consequence could be a change in the structure of foreign exchange reserves. While remains about 63% of 6 trillion in foreign reserves in the world are in U.S. dollars, € 27% and 10% in all other currencies together after an operation like wipers "gain of euro debt to the detriment of the U.S. dollar. Dolaires would go against all races (from 75 in the who is now 50 or lower).
Asian economies would have to write the substantial amount of reserves, but development they have achieved in the last quarter century, probably greater than the costs incurred. We should probably get out of stagflation times stronger than ever, ready to make another inflationary bubble, I hope you do not see anything.
Mordekai Rurzag
* Due to editorial guidelines that I had to remove links to information sources
About the Author:
Mordekai trades forex and writes related articles since 1997.
Article Source: ArticlesBase.com – Will Usa Default on Their Debt?
