Borrowed Money

by Kerby Anderson, Point of View: All of the current spending by the government creates a problem. The money for this spending must be borrowed. And that is creating a number of problems for the government. Let's consider each one of these problems.

The U.S. borrows heavily from foreign countries, especially the Chinese. And this creates the first problem: foreign influence. Former congressman Ernest Istook reminds us "that whoever pays the piper gets to call the tune. Foreign leaders aren't incline to whistle 'Yankee Doodle!'"

Another problem is that these countries are not an infinite source of credit. They have their own economies to deal with and will probably want to put their investments closer to home especially as they look at the current congressional spending spree.

Are we approaching a time when America's excessive borrowing makes us a bad credit risk? Sometimes the U.S. looks like some of its citizens who have maxed out their credit cards and have nowhere else to turn. Experts are predicting a $1.2 trillion deficit. This is unprecedented. Add to that the trillions of dollars that have been spent or will be spent in the bailout package and the stimulus package. A foreign investor may not want to lend any more money to the U.S.

The amount some of these countries hold in American debt is staggering. China's holdings nearly approach $700 billion, and countries in the Middle East hold almost $200 billion. Add to that more than another $200 billion held by foreigners who use Caribbean banks for secrecy. These countries may not wish to invest any more in America and might even decide to withdraw their current investments. In a previous commentary I warned about the possibility that these foreign investors may simply decide to cash in their Treasury bills and invest them closer to home. If our creditors cut us off, our Treasury securities could reach junk bond status.

If America becomes a bad credit risk, then the government will have only one option: print the money. Ernest Istook believes that will "produce Wiemar Republic-style hyperinflation." The lesson here is simple. Before you spend the money, you need to know where it will be coming from. I'm Kerby Anderson, and that's my point of view.

---

Tags: Borrowing, Chinese, deficit spending, Kerby Anderson, Point of View, US Debt To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. Thanks!