|
Why foreigners are propping up U.S. debt,
and why we need them
Mercury News/AP
December 10, 2005
NEW YORK (AP) - It's an addiction. Every day, the United States sucks in
more and more money from abroad, to keep the nation going.
At our current rate of trade and budget deficits, foreigners need to
purchase $2 billion in dollar-denominated assets each day just to keep the
dollar stable, said Axel Merk, who manages $60 million at Merk Investments and
runs the Merk Hard Currency Fund.
More than half the national debt is now financed by foreigners, according to
Roger Ibbotson, chairman of financial consulting firm Ibbotson Associates in
Chicago and a professor at Yale School of Management. That's been true since
1980, but the difference now, he says, ""is the scale of the game."
""I guess everyone wants to keep this game going," Ibbotson said. But if one
of the countries we're most dependent on drops out, it could be ""like a bank
run."
Foreign investments in U.S. bonds and equities set a record in September,
the last month for which data is available.
Foreigners bought $1.01 trillion in U.S. securities in the 12 months ending
in September, up from $866.6 billion for the same period in 2004, according to
U.S. Treasury International Capital, which tracks foreign purchases of U.S.
securities.
Why did foreign investors' interest in the United States intensify?
For one thing, investors can get a better return on U.S. bonds than they can
in their home countries. Yields in the United States have been near 4.5
percent, while yields on euro bonds are closer to 3.2 percent and yields on
Japanese bonds are near 1.5 percent.
Second, our massive trade deficit has sent tens of billions of dollars
abroad, as imports increased while exports declined, which has helped foreign
business owners sock away plenty of dollars.
Then, there's our personal savings rate, which has been hovering near
zero.
""We need the money because we're not saving any," Wyss said. ""We need it
from anyone who has a spare yen to lend us."
|