Wednesday, January 14, 2009

Wall Street Journal: American Power Is on the Wane

American Power Is on the Wane
(Wall Street Journal, 1/14)
The first reason, surely, is the U.S.'s truly exceptional budgetary and trade deficits. There is nothing else in the world like them in absolute measures and, even when calculated in proportion to national income, the percentages look closer to those you might expect from Iceland or some poorly run Third World economy. ...

The third thing I'm really scared about is that we'll likely have very little money ourselves to pay for the Treasury bonds that are going to be issued, in tens of billions each month, in the years ahead. Sure, some investment firms, bruised by their irrational exuberance for equities and commodities, will take up a certain amount of Treasury issues even at a ridiculously low (or no) rate of return. But that will not cover an estimated budget deficit of $1.2 trillion in 2009.
The big question now is whether the world will have a market for all the new treasury bonds the government will be issuing. There comes a point where the "full faith and credit" of the U.S. Government implodes. --GC

No comments: