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Remember When They Warned Us That Japan Might Not Always Buy Our Debt

I was young, but I remember the news stories and the dire warnings from family friends, parents and uncles: Japan owns us .. and they may not always want to.  Yeah, that was a long time ago and a major player has changed, but the warning is still relevant.

Before the Japanese asset price bubble burst (sound familiar? – yeah, different article .. I know) in the early 1990′s, Japan was the single largest holder of U.S. Treasuries (our debt).  I can vividly remember being reminded of cheap Japanese goods flooding U.S. markets, the “Buy American” campaign and the fact that if Japan ever stopped buying our T-Bills, we’d be screwed.  Japanese firms were buying up U.S. real estate and there were even conspiracy theories that they would call in the debt if it went bad and take our National Parks or mineral-rich land.  Sounds nothing like today …

We apparently never learned our lesson.  We kept on borrowing and spending as-if we would never have to pay it back.  Japan’s economy collapsed and another manufacturing giant took its place as America’s sugar daddy – China.

Oh, I know, all that noise about the Japanese not wanting to purchase our debt never happened and another benefactor showed up to take their place when the Tokyo couldn’t.  So, “why so serious”?  Things are different now.

From 1970 to 2008, we can call it the BB period (before Barry), the highest debt load as a percentage of GDP was 40.8% (yeah that includes G.W. Bush’s tenure). In 2009 we suddenly spiked to over 60% and it’s scaring some folks – namely those who hold large portions of our debt.

It might have a different slant if 2009 was projected to be an out-lier, but the Obama administration and money-drunk Progressive Congress have gone all out.

  • $56 Billion in new regulations
  • $1 Trillion health care reform
  • $785 Billion Stimulus
  • Billions in foreign aid
  • Pushed Unemployment to a record-high 99 weeks of benefits
  • my stomach is turning flips .. can’t go on with the list – but you get the point

This irresponsible spending of money that America does not have is pushing our debt to “unsustainable” levels.  In 2010 it’s projected to be 67.1% of GDP and take a wild guess for 2011 – down?  nah .. 70.1% of our national gross domestic product will be represented by debt.  The cause of the mess is obvious, but that’s not the point of this post – it is the dire effects that about to hit us all smack in the face.  Just like the young adult parents have to let feel the pain of their poor choices – our benefactors are leaving us to fend for ourselves.

As the Fed released a torrent of printed money at our debt, outside investors are running away from purchasing our debt.  The Fed’s monitization of the debt was supposed to cause higher bond prices and therefor lower yields (interest rates).  That would make credit easier to get and savings less attractive.  All of this to get us to go out and spend money that many don’t have and some are too afraid to spend.  It didn’t work.

Americans aren’t looking for more credit, they’re looking for jobs.  The Chinese and Europeans aren’t looking to have yeilds go down and they have absolutely no interest in seeing a flood of pretend money in international markets.  They seem to have had enough.  Americans aren’t borrowing and now it appears the rest of the world may no longer be lending.

Despite the printing of gobs of cash and buying our own debt with the monopoly cash – yields rose.  The only cause for that is that the Fed may be the only one buying T-bills in any decent volume.  As a side effect, Americans get to watch the dollars buy less.  Hello late 1970′s .. inflation, milk, gas, you name it.. out of reach.  Oddly enough, Paul Volcker was there then too.

Is it too late for American austerity?  Remember when they warned us?

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