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Have We Borrowed Too Much?

Have We Borrowed Too Much?

Kerby Anderson



During the debates about the bailout package and the stimulus package we have heard a number of things. President Obama says that we should be prepared to face "trillion dollar deficits for years to come." His critics say we are borrowing against our children's future. Today I would like to inject a bit of reality into both of these comments.


It is entirely possible we have already borrowed too much and won't be able to find countries in the future that would be willing to fund our national debt. The nations that current fund a majority of our debt are the Chinese, the Japanese, and the Saudis. These are creditor nations that already own trillions of dollars of U.S. government debt and really are the only ones even capable of underwriting the trillions more that President Obama wants to spend.


As Peter Schiff points out, these countries are unlikely to continue funding our debt.  "These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones." Does that make sense? Is it reasonable to assume that foreign countries will continue to fund our debt and never decide to cash in their T-bills and use them somewhere else?


In order for this future borrowing to work, our nation's "creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver." Such an assumption goes against logic and human nature. Yet that seems to be the assumption in most of these debates about the bailout and stimulus packages. President Obama believes we need to borrow to solve our current economic crisis. His critics complain that we are borrowing against our children's future.


What is missing in the discussion is whether we can continue to borrow from foreign nations. If we cannot, then the government will have to go to the Federal Reserve and begin printing more money. The next time you hear someone talking about borrowing against our future, you might reasonably ask whether we have already borrowed too much.