Eleven Trillion and Growing But Who's Worried?

The National Debt surpassed eleven trillion this week without much fanfare. According to Politico that "whopping number" may have major ramifications for President Barack Obama, as he tries "to push through a raft of big-ticket bills on health care, energy, education and climate change -- while also attempting to stabilize the swooning economy." Certainly, it is daunting. But I am more worried about the other bit of news that is also passing without much fanfare.

Net overall capital outflows from the United States were reported at a record $148.9 billion in January, the Treasury Department said on Monday.

The outflow, which includes short-term securities such as Treasury bills, was well short of covering that month's $36.03 billion trade deficit.

The prior outflow record was $133.0 billion in August, 2007.

"The market impact is minimal because the data was two-months old," said Matthew Strauss, senior currency strategist, at RBC Capital Markets in Toronto. "But the reluctance of foreign investors to buy U.S. assets is a concern for the dollar going forward."

Investors sold a net $43 billion in long-term U.S. securities in January, the Treasury Department said. Demand for long-maturity securities such as bonds, notes and equities shifted from a revised inflow of $34.7 billion in December.

Net purchases of U.S. Treasuries added up to $10.7 billion, down from $14.97 billion in purchases in December.

Private overall net outflow of $158.1 billion was also a record, up from a revised inflow of $77.9 billion in December and exceeding the previous August 2007 record outflow of $110.7 billion.

Both China and Japan increased their U.S. Treasury holdings.

China's holdings rose to $739.6 billion in January from $727.4 billion in December.

Japan's U.S. Treasury holdings rose to $634.8 billion in January from $626 billion on December.

The reluctance of foreign investors to buy US assets is a concern period. Another worrisome development is the Japanese current account. Figures released earlier this week showed that Japan's current account balance swung to its largest deficit on record in January to 172.8 billion yen ($1.8 billion). It is the first current account deficit in Japan in 13 years as Japan's export sector contracts impacted by the global downturn. This, in turn, is likely to impact Japan's ability to buy US treasuries.

Tags: Capital Flows, Current Account Deficit, National Debt (all tags)

Comments

6 Comments

Re: Eleven Trillion and Growing But Who's Worried?

I don't see what choice ultimately foreign countries have in the co-dependent relationship that now exists in the global economy between debtor nations like the U.S. and export driven economies like China. Ultimately, they can not afford us not buying their stuff, and their own economies at home can not sustain it. So- where are they going to go with their money?

by bruh3 2009-03-17 10:26PM | 0 recs
Re: Eleven Trillion and Growing But Who's Worried?

And this again is why questions on the debt and deficit are absolutely not hand wringing. When all these "stimuli" are being proposed in addition to the bailouts and giveaways--all coupled with a reluctance to increase taxes by Obama (he will only now tax the rich, and it's only a repeal of Bush's tax cuts, while actually cutting taxes for everyone else depriving the treasury of revenue on balance) questions must be asked. It is not enough to just say "emergency, fuck the debt." Because once this debt approaches 100% of GDP, which it will before Obama's first term is over, it will have enormous ramifications on our ability to keep spending and adding debt. We're going to have Italy's debt to GDP ratio, and for the US to be in that position would be disastrous.

If our debt is say $17-18-19 trillion by the time Obama is out of office in 8 years, with almost no recourse to pay it back or substantially decrease it, only 2 options are left: massive devaluation of the currency, or default. Two options who's consequences would make this crisis look like a picnic.

In order to avoid this, taxes must be raised across the board, not just for the rich, and substantial increases at that, combined with eventual massive spending cuts--preferably defense cuts, but not just that alone. Failure to do that, which is all but guaranteed is going to leave the other 2 inevitable solutions, and their consequences.

by need some wood 2009-03-17 11:05PM | 0 recs
Re: Eleven Trillion and Growing But Who's Worried?

What?  We're now on a base eleven system?  Ten trillion wasn't any big deal, passing with little fanfare under Bush, but ELEVEN TRILLION!  OMGWTFBBQ!!!111!!!

by lojasmo 2009-03-18 02:23AM | 0 recs
Re: Eleven Trillion and Growing But Who's Worried?

You do realize that I did write about the national debt when it passed ten trillion for starters and more to the point it is that capital outflows that should worry you.

by Charles Lemos 2009-03-18 04:02PM | 0 recs
Re: Eleven Trillion and Growing But Who's Worried?

I'm not worried.

by midwestdem1 2009-03-18 03:17AM | 0 recs
Re: Eleven Trillion and Growing But Who's Worried?

They are all worrisome in my book but as of now, there is not much choice, is there?  But thank you for giving me the heads up on the other things to be concerned about because I never even thought of them.  This will be another sleepless night for some people.  At least the stock market is rallying.  

Evelyn Guzman

by randeg 2009-03-19 04:22AM | 0 recs

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