Wallstreet getting Worried on the Size of U.S. Debt

Wallstreet getting Worried on the Size of U.S. Debt

www.nytimes.com

The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.

As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.

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We all know this would sooner or later happen. I've always said that America is only able to live on such a high standard due to foreign countries willing to pay the debts. At the time they refuse to pay any longer due to a lack of trust in the American economy, and we clearly witness a turning point, the ''American system'' would come to an end.

I've always been taught that I cannot spend money if I don't have it. Americans (generally) seem to have the habit that credit cards can buy them everything without thinking of the long-term. Same applies for the US government, but they must have known that it would once come to an end:

WASHINGTON (AFP) – China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.
Source

www.nytimes.com
(visit the link for the full news article)

[edit on 4-5-2009 by Mdv2]

i for one dont see how this could possibly worry wall street at all. the reason i say this is think about a monopoly game. if one person owns the whole board- game. as the other players such as the car, hat go around the board and from time to time land on boardwalk. the owner of the game takes the corporations-people out and implements others to regulate. this game can go on and on as money is grown out of thin air and is not regulated. finally when all players are broke you change the currency! so what happens to the players that were not so fortunate? you build jails and more jails and more laws to implement people into jails. and as long as you give people the false hope of rags to riches, powerball, life styles of the rich and famous, you will have the little ants doing what they do best! that is working to obtain this misleading dream!

so question? why if wall street is so worried has the market grown as of late?

think you know the answer!!!

If China loses faith, the dollar will collapse

Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve's policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

The chatter over alternatives to the dollar mainly reflects the unhappiness with US monetary policy among the emerging economies that have nearly $10,000bn (€7,552bn, £6,721bn) in foreign exchange reserves, mostly in dollar assets. Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests. But the US situation is unique: it borrows in its own currency, and the dollar is the world's dominant reserve currency. The US can disregard its creditors' concerns for now without worrying about a dollar collapse.

The faith of the Chinese in America's power and responsibility, and the petrodollar holdings of the gulf countries that depend on US military protection, are the twin props for the dollar's global status. Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of dollar assets. You have to check the asset allocations of wealthy ethnic Chinese to understand the dollar's unique status.

US policy is pushing China towards developing an alternative financial system. For the past two decades its entry into the global economy rested on providing cheap labour to multinationals and pegging the renminbi to the dollar. The dollar peg allowed it to leverage the US financial system for its international needs, while domestic finance re-mained state-controlled to redistribute prosperity from the coast to the interior. This dual approach has worked well. China could have its cake and eat it. Of course, the global credit bubble was what allowed the approach to be effective; its inefficiency was masked by bubble-generated global demand.

China is aware it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects its anxiety over relying on the dollar system. The US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse.

Read in full here

We can debase our currency, but that means we have to go back to living within our means. So we would need to cut all social programs and defense spending in half immediately. With the amount of boomers hitting old age, that means alot of pain for our elderly and an end to our empirical wars.

The associated rise in interest rates will effect the 80% of derivatives tied to interest rates. Some $800 Trillion or so. The CDS currently plagueing the system are a mere 9% of all derivatives. No, there is no easy way out of this, if there's a way out at all!