Will Foreigners No Longer Buy U.S. Debt?

During the Bush Administration the United States government has managed to avoid trouble from Bush's huge deficits by borrowing money, a lot of it from foreigners. That market may be drying up. Bloomberg, a financial news reporting service, ran an article on its website, which reported on a speech that Alan Greenspan recently gave. The following is from the article:

Former Federal Reserve Chairman Alan Greenspan said the dollar's depreciation may reflect growing unwillingness among foreigners to buy U.S. debt.

``Obviously there is a limit to the extent that obligations to foreigners can reach,'' Greenspan said in a speech in Washington today. The dollar's decline to its lowest since 1997 may be ``an indication America is approaching this limit.''

Greenspan's warning came after the U.S. Treasury reported last week that international investors sold a record amount of U.S. financial assets in August. Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.2 billion in July.

The dollar has declined about 8 percent against the euro this year and 4 percent against the yen.

Most Americans aren't aware of how much the Bush Administration has come to depend on foreigners purchasing American debt to finance the government's operations. During Bush's administration the amount of debt held by foreigners has doubled from about one trillon to two trillon, according to information put out by the Federal Reserve Bank of St. Louis.

During that same period the amount of debt incurred by the United States has gone up from six trillion to over 8 trillion dollars, again according to the Federal Reserve Bank of St. Louis. This means that almost one-half of the total debt incurred during the Bush Administration was purchased by foreigners.

This deficit spending has allowed Bush to pursue his reckless tax cuts, fight a war costing half a trillion dollars, and still run the Federal government, albeit not very well. If, however, foreigners cut back on purchasing U.S. debt, then the financial house of cards that Bush built may come tumbling down. The U.S. would either have to cut back its spending, raise interest rates to attract more investors, raise taxes, or some combination of all three.

None of this will happen under Bush. He won't be able to cut spending during the last year and a half of his presidency. He won't raise taxes. He doesn't control what the Federal Reserve pays out in interest payments. It will happen under the watch of the next President while Bush is down at his Crawford ranch playing cowboy.