Kathianne
03-31-2010, 03:35 PM
Undoubtedly:
http://www.thefiscaltimes.com/Issues/The-Economy/2010/03/29/Debt-Now-a-Foreign-Policy-Problem.aspx
Opinion
Passover, Brisket and Bond Market Vigilantes
By Ann Reilly Dowd on Mar 29, 2010
Amid the chopping of dates, nuts and mint leaves in preparation for Passover, the chatter around Council on Foreign Relations President Richard Haass’ breakfast table last Sunday was decidedly domestic. The topic: whether the lackluster demand for Treasury bonds and spike in interest rates was a mere coincidence with President Obama signing sweeping health care reform legislation.
Or, was it “the canary in the coal mine,” as former Fed Chairman Alan Greenspan put it last week -- a sign that investors, notably the Chinese, were finally tiring of funding America’s spending binge for pitifully low returns? Was this the start of a surge in interest rates that could slow the recovery, or worse yet, send the economy into a debt-driven double dip?
....
History suggests that such high debt levels can slow growth dramatically. In a recent study, economist Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard studied the effect of debt-to-GDP ratios on growth in developed and developing countries from 1790 to 2009. Of more than 2000 instances examined in the study, growth averaged a measly 1.7 percent in developed countries where the debt-to-GDP ratio exceeded 90 percent. That was a full percentage point lower than in countries with debt-to-GDP ratios between 60 percent and 90 percent, and two percentage points below countries with ratios below 30 percent.
Haass isn’t worried about the Chinese dumping U.S. debt abruptly. “It’s in the best interest of the Chinese to act cautiously,” says Haas. “They want political stability, which requires high employment, which means exporting to the U.S. They don’t want to weaken our economy. And we need them to buy our debt. In a sense we are in a mutual hostage relationship.”
Haass’ nightmare scenario is that bond market vigilantes will push market interest rates up dramatically, cutting off the recovery and sending the nation even deeper into debt. That in turn would make it tougher for the U.S. to maintain its defense and foreign aid budgets, and to invest in its people and infrastructure. “Rising deficits mean we cannot invest in our future,” says Haass. “And we cannot remain a world leader if we cannot invest.”
...
http://www.thefiscaltimes.com/Issues/The-Economy/2010/03/29/Debt-Now-a-Foreign-Policy-Problem.aspx
Opinion
Passover, Brisket and Bond Market Vigilantes
By Ann Reilly Dowd on Mar 29, 2010
Amid the chopping of dates, nuts and mint leaves in preparation for Passover, the chatter around Council on Foreign Relations President Richard Haass’ breakfast table last Sunday was decidedly domestic. The topic: whether the lackluster demand for Treasury bonds and spike in interest rates was a mere coincidence with President Obama signing sweeping health care reform legislation.
Or, was it “the canary in the coal mine,” as former Fed Chairman Alan Greenspan put it last week -- a sign that investors, notably the Chinese, were finally tiring of funding America’s spending binge for pitifully low returns? Was this the start of a surge in interest rates that could slow the recovery, or worse yet, send the economy into a debt-driven double dip?
....
History suggests that such high debt levels can slow growth dramatically. In a recent study, economist Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard studied the effect of debt-to-GDP ratios on growth in developed and developing countries from 1790 to 2009. Of more than 2000 instances examined in the study, growth averaged a measly 1.7 percent in developed countries where the debt-to-GDP ratio exceeded 90 percent. That was a full percentage point lower than in countries with debt-to-GDP ratios between 60 percent and 90 percent, and two percentage points below countries with ratios below 30 percent.
Haass isn’t worried about the Chinese dumping U.S. debt abruptly. “It’s in the best interest of the Chinese to act cautiously,” says Haas. “They want political stability, which requires high employment, which means exporting to the U.S. They don’t want to weaken our economy. And we need them to buy our debt. In a sense we are in a mutual hostage relationship.”
Haass’ nightmare scenario is that bond market vigilantes will push market interest rates up dramatically, cutting off the recovery and sending the nation even deeper into debt. That in turn would make it tougher for the U.S. to maintain its defense and foreign aid budgets, and to invest in its people and infrastructure. “Rising deficits mean we cannot invest in our future,” says Haass. “And we cannot remain a world leader if we cannot invest.”
...