Mike Larson’s excellent series — Six Steps to Financial Doomsday — continues today with his insightful examination of how America is now choking on foreign debt. Do NOT miss a single issue in this outstanding series! — Kevin Kerr |
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Our big reliance on foreign debt began in the year 2000. Back then, Washington owed foreigners a total of $1 trillion.
The single largest loans came from Japan. In fact, at that time, the U.S. borrowed more from Japan than from Germany, the U.K., OPEC and China COMBINED!
Our leaders had already spent everything they brought in through taxes and other fees, but that wasn’t enough. They wanted to spend more.
So they borrowed everything they could from U.S. citizens. But that still wasn’t enough.
So the U.S. government borrowed much, much more from overseas — this time mostly from China.
And as a result, Washington now owes foreign investors over FOUR TIMES MORE than it did in 2000.
And today, China’s central bank is the supreme authority that decides on the fate of more loans to the United States than any other country in the world.
We have literally sold our birthright
— our right to control our own destiny —
to foreigners!
China now owns $1.16 trillion of our bonds. Japan owns $912 billion. The OPEC countries who keep us addicted to their oil hold another $230 billion.
All told, foreign investors own a hefty 47 percent of our marketable Treasury securities!
Result: In some ways, we’re no longer in charge of our own destiny! We’re at the mercy of our creditors!
And those creditors are unforgiving: They’re already cutting off other profligate countries like Greece, Ireland, and Portugal, and they’re in the process of doing so to Italy and Spain. France could be next, and I can only wonder how long it’ll be until WE’RE in the crosshairs!
In fact, you can already see investors backing away from our markets. Private, foreign buying of our long-term bonds plunged $18.3 billion in June.
That was the biggest drop in history, eclipsing June 2000′s $16.5 billion dump. If this keeps up, the only way we’re going to continue to attract investors is by offering higher interest rates — MUCH higher.
What are our so-called “leaders” doing in response? Are they taking drastic steps to fix the problem? No! They’re making things worse, by giving Uncle Sam the authority to run up even more debt — as much as another $2.8 trillion thanks to the debt ceiling authorization in August. It’s despicable!
Look, Greece’s 10-year note yield surged from 6.1 percent to 17.7 percent when its foreign creditors decided to pull the plug. Ireland now has to pay 9.6 percent to borrow for 10 years, up from 4.6 percent. Portugal pays 10.2 percent, up from 4.1 percent.
That’s terrible news for the European banks holding those countries’ bonds. Worse, the fallout from those increases is now clearly spreading throughout the euro zone!
On Monday of this week, we learned that the euro-zone’s GDP growth slowed precipitously in April, May and June — up just 0.2% since the first quarter of the year.
Export revenues plunged 4.7% in June, a huge one-month drop … manufacturing growth slumped in July … and economic confidence slumped to the lowest in almost a year.
Worst of all, Germany — Europe’s largest economic engine by far — reported its economy grew only 0.1% in the second quarter. Or in plain English, its recovery has almost ground to a halt!
Then yesterday, German chancellor Angela Merkel and French President Nicolas Sarkozy put the kibosh on rumors that the European Union might float Eurobonds to finance even more bailouts!
Not only that. They also made it clear that the EFSF — the European equivalent of our TARP slush fund — will not be expanded, which leaves heavily indebted Italy and Spain twisting in the wind.
Make no mistake: Europe’s great debt crisis is about to go critical mass — and when it does, you’ll get a telling sneak preview of what you can expect right here in the States, as well!
After all, the U.S. economy is already slowing precipitously. Higher interest rates would almost surely kill any economic growth that’s left – and they would leave the U.S. stock market a smoking ruin.
