Monday, July 12, 2010

Jim Hamilton's Sobering Thought

A sobering thought from Jim Hamilton:
So I can see who bought the $2.7 trillion in net new Treasury debt issued between 2007 and 2009. What I'm having more trouble seeing is who is going to buy the additional $8 trillion in net new debt that would be issued over the next decade under the CBO's alternative fiscal scenario.
Hamilton notes that over half of the new debt between 2007 and 2009 went to foreigners. Can the rest of the world continue to absorb this large of a share of the projected $8 trillion shortfall? The only way I see this happening is that the rest of the world has rapid economic growth over the next decade and during this time there is no alternative treasury or other safe asset market that emerges to compete with the U.S. treasury market. What do you think?

2 comments:

  1. This is just accounting.

    The deficit creates a non government surplus, and the capacity to buy the bonds. Doesn't really matter from what source.

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  2. [i]The deficit creates a non government surplus, and the capacity to buy the bonds. Doesn't really matter from what source.[/i]...

    Unfortunately it also redistributes the wealth to the bond holders while bankrupting the taxpayers. As one who has seen a fair piece of my own production efforts transferred in this swindle, I don't find your view comforting in the slightest.

    The truth is that at some point the foreign (i.e. Chinese) appetite for our bonds will lag, and interest rates will go up. I think it's already in progress.

    The dollar is on borrowed time. I look for a seismic economic event sometime in the next few years,brought on by one or more of your AS shocks.

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