Foreign governments are dumping US debt at a record rate
Ryan McMaken, Mises Institute
BusinessInsider.com
Mar. 20, 2016
For years, the US government has been able to finance it’s debt at cheap interest rates because there have always been plenty of enthusiastic buyers. As long as the Chinese, the Japanese, and others continue to hold and buy large amounts of US debt, then the US government doesn’t have to raise the amount it pays to the lender. This is also known as the interest rate, of course. As long as there are plenty of buyers, the interest rate remains low, and payments on the debt remain low.
Naturally, if the Chinese and the Japanese, and others, decided they didn’t want to buy US debt anymore — at least not at the promised interest rate — then the US government would have to entice them and others to take on the debt by promising to pay a higher interest rate on it. In turn, this would require more spending on debt service by Congress.
If this should ever happen, it would require significant cuts to government programs — or tax increases, or both — in order to pay the larger amounts needed to keep paying the federal government’s debts. Otherwise, the US government will default on its debts.
So, for some people who are actually paying attention, it is concerning that the Chinese government has been selling off it’s US government debt. If this continues, all things being equal, the US Treasury will have to begin offering higher interest rates in its debt.
CNN reported this morning that foreign governments have been dumping US debt as record rates.
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