December 3, 2008

A world upside down

The amount of debt held by foreigners keeps growing, and now we are begging them to keep buying our debt.

The US is "begging" China to buy parts of US banks after Chinese government put limitations on such purchases. A couple of years ago, the US would be wondering if it should allow foreign investment from China in US banking system. China and Japan are the two major purchasers of US Treasury debt. If China is stopping bank ownership, how long before it stops buying US gov. debt? We are trying to push interest rates down and cajoling everyone else to do the same. If we can't sell our debt, then interest rates would have to rise, possibly a great deal. The bonds tank if that happens.

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