# The great debt call in. Our (US) foreign owned debt. **URL:** \ **Category:** Great Debates\ **Created:** [December 9, 2004, 1:31am UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853 "2004-12-09T01:31:51Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![AmericanMaid](https://avatars.discourse-cdn.com/v4/letter/a/e480ec/32.png) [@AmericanMaid](https://boards.straightdope.com/u/AmericanMaid)\ **Post date:** [December 9, 2004, 2:38pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/21 "2004-12-09T14:38:32Z")
OPEC nations have been shifting their investments from US dollars to Euros and some people believe that is what has exacerbated the dollar’s slide. **Reeder** , I think your worries about foreign countries impacting our economy is valid (though I think your theory is shaky). ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [December 9, 2004, 5:52pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/22 "2004-12-09T17:52:28Z")
> [@Reeder](#): > > The value of the dollar is at an all time low. Or pretty close anyway. Cite? Against the pound, it’s nowhere near a low. In fact the dollar is strong against the pound. It’s weaker than it was a year ago, and much weaker than when it was £1/$1.10; but stronger than when it was £1/$2.40, and much stronger than when it was £1/$4. ---
**Author:** ![aruvqan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aruvqan/32/2891_2.png) [@aruvqan](https://boards.straightdope.com/u/aruvqan)\ **Post date:** [December 9, 2004, 7:06pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/23 "2004-12-09T19:06:49Z")
Totally dumb question here, but doesnt the US Government also make loans to developing countries, and have some loans still outstanding from earlier? I vaguely remember in history class some mention of loaning a number of countries much $$ to help them restore [in the form of 0 interest loans] did all thse finally get paid or are some still outstanding? What would happen if the US nailed [frex] Japan for repayment of some postWW2 loan that was just sitting there[if there were such a thing…that is=)] And instead of sending some sort of aid to some country we _didnt_ just finish fighting in we used that money to pay a chunk of debt, wouldnt we be better off? [though my personal stance on things like the Christian Childrens Fund, which my great aunt was one of the founders of… stop sending money over seas when we have a homeless and child abuse / foster system problem here. When all our people have homes, all our kids have a place to live, clean clothes, medical care and homes, and people actually have JOBS, _then_ we can send private money over seas. Maybe the whole ‘charity starts at home’ would mean more if we took care of our own first, then saved the rest of the world…] ---
**Author:** ![Mr.Biggles](https://avatars.discourse-cdn.com/v4/letter/m/839c29/32.png) [@Mr.Biggles](https://boards.straightdope.com/u/Mr.Biggles)\ **Post date:** [December 9, 2004, 7:35pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/24 "2004-12-09T19:35:00Z")
Japan has a geopolitical interest in propping up the US…letting it fall entirely into the Chinese sphere has to give any sensible Japanese politician shivers. It seems as if the US is betting no one will stop buying or sell in large quantities because doing so would harm them a great deal as well. But the dollar is losing to the euro and if oil switches over to the euro, it could set off a chain of events that could get ugly. If both Germany and France decide that the huge sucking sound coming from the US is unacceptable, Europe would lose little from ending US reserve status. America might want to start being nicer to France. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [December 9, 2004, 8:56pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/25 "2004-12-09T20:56:50Z")
I can see some good coming from this: -the USA will no longer be able to afford military bases around the world: it is time to pack up and leave! -WALMART will have to buy its junk from American manufacturers, let’s keep the jobs in the USA -Europe will finally be forced to shoulder its share of the burdens (of policing the world) -the USA will finally have to put its financial house in order As I say, much better that American have jobs MAKING things, instead of just selling stuff imported from China. Oh, and we(in the USA) won’t be such a magnet for 3rd world immigrants. They might actually be able to find paying-wage jobs in heir own countries. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [December 27, 2004, 1:37pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/26 "2004-12-27T13:37:07Z")
Dollar at $1.355 now! How long until we see 1.4? ---
**Author:** ![ColonelDax](https://avatars.discourse-cdn.com/v4/letter/c/71e660/32.png) [@ColonelDax](https://boards.straightdope.com/u/ColonelDax)\ **Post date:** [December 27, 2004, 3:59pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/27 "2004-12-27T15:59:46Z")
> [@Jonathan Chance](#): > > Dollar at $1.355 now! How long until we see 1.4? I don’t know, but the euro just hit $1.3625, so it’s getting closer, that’s for sure. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [December 27, 2004, 7:11pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/28 "2004-12-27T19:11:28Z")
That figure was against the Euro. And from yesterday. So you’re telling me that the dollar slipped 7/10 of a cent in one day? ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [December 27, 2004, 8:54pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/29 "2004-12-27T20:54:33Z")
Yep. In fact it got a little worse but didn’t close at the bottom. No real new news – just a perception that the central banks are content to let it slide and slow holiday trading, when relatively small trades can push things around. ---
**Author:** ![js\_africanus](https://avatars.discourse-cdn.com/v4/letter/j/87869e/32.png) [@js\_africanus](https://boards.straightdope.com/u/js_africanus)\ **Post date:** [December 27, 2004, 9:42pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/30 "2004-12-27T21:42:49Z")
> [@Reeder](#): > > What would happen if all the foreign countries that own most of our debt decided to call it in? I’m not so sure it’s foreing _countries_ as foreign _people_. If such a thing were possible, the worst that would happen is that the U.S. would say “nuts to that” and pay its debts on schedule. As long as people continue to expect the U.S. to pay on schedule and just as reliably, then there really shouldn’t be much effect. ---
**Author:** ![even\_sven](https://avatars.discourse-cdn.com/v4/letter/e/dfb087/32.png) [@even\_sven](https://boards.straightdope.com/u/even_sven)\ **Post date:** [December 27, 2004, 9:48pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/31 "2004-12-27T21:48:16Z")
How the hell are they going to collect? We’ve got the big guns. The biggest threat they have is not to trade with us, and in most cases that will hurt them a lot more than it hurts us. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [December 27, 2004, 10:10pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/32 "2004-12-27T22:10:44Z")
Like I’ve said up there… It’s not a matter of collecting the debt early…it’s a matter of reducing the demand for US Bonds. That’s a real problem if it happens. ---
**Author:** ![MEBuckner](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mebuckner/32/2896_2.png) [@MEBuckner](https://boards.straightdope.com/u/MEBuckner)\ **Post date:** [December 27, 2004, 10:25pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/33 "2004-12-27T22:25:01Z")
> [@danceswithcats](#): > > Better suited for GD-your post smells of troll. **Moderator’s Note:** Whatever forum you are in, please don’t make [public accusations of trolling](http://boards.straightdope.com/sdmb/showthread.php?postid=2670336). ---
**Author:** ![js\_africanus](https://avatars.discourse-cdn.com/v4/letter/j/87869e/32.png) [@js\_africanus](https://boards.straightdope.com/u/js_africanus)\ **Post date:** [December 28, 2004, 5:06pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/34 "2004-12-28T17:06:37Z")
> [@even sven](#): > > How the hell are they going to collect? It’s a hypothetical. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [December 28, 2004, 11:39pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/35 "2004-12-28T23:39:48Z")
> [@ColonelDax](#): > > I don’t know, but the euro just hit $1.3625, so it’s getting closer, that’s for sure. The odd thing is, the lower dollar should improve the trade deficit, as imports get more expensive and exports get cheaper. But this isn’t happening - the dollar is slideing and the deficit is getting worse. The article I read in the Times sais this is because of still strong demand in the US, but I wonder if it is because there are few factories inside the US, so there are no low cost internal alternatives. ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [December 28, 2004, 11:56pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/36 "2004-12-28T23:56:49Z")
Ah. What you’re seeing there is called the J-curve. Briefly, the way the theory works is that currency movements are faster than the search for alternative sources for goods. So initially, a declining currency causes an increase in the trade deficit because the country with the declining currency is buying the same amount of stuff at higher prices (or a little less stuff, but not enough to overcome the new higher prices). It’s said to work the other way, too – other countries import the same amount of stuff at lower prices or just a little more but not enough to overcome the new currency implications. Only over time will end-user preferences change sufficiently to reduce the merchandise deficit. It’s something of a controversial theory. One of my friends, an extremely well-regarded international portfolio manager at the time, was known for wandering the halls insisting that the J-curve didn’t exist for days after anyone mentioned it to him. If you look at other depreciations, the evidence is decidely mixed. That’s partly because it’s a relatively small effect and most devaluations occur in a context of much larger things happening that can swamp the effect. There are some early signs that in this case things are happening as predicted by the theory. If the trend continues international economists will have a lot to chew on at the next few conferences. I kind of hope it doesn’t – devaluation is rarely a good policy choice, particularly for smaller economies, and I’d hate to see pro-devaluation forces get more ammunition for their arguments. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [December 29, 2004, 4:03am UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/37 "2004-12-29T04:03:57Z")
From James Howard Kunstler’s “Clusterfuck Nation Chronicle” at [http://www.kunstler.com/mags\_diary12.html:](http://www.kunstler.com/mags_diary12.html:) > [@](#): > > November 15, 2004 > A theory banging around the web says that the current bull run-up in the stockmarket is exactly proportional to the amount of loss in value suffered by the dollar over the past year. In other words, that higher stock valuations only make up for the fact that it takes more dollars now to buy each share. > We might not even care that much what goes on in the stock market if the finance sector wasn’t the bloated, diseased organ it has become. Some of you under thirty-five might not know this, but under normal circumstances finance is not the “industry” that drives the economy. Rather it is supposed to be the capital formation service for an economy based on the production of things of value. > The perversity of the current situation is easy to see in “blue chip” companies like General Motors and General Electric. Both of them now make profits only in their finance divisions, not from making cars or turbines. > What ought to scare people who pay attention to these things is that no sane investor will want to buy American treasury notes if the steep decline of the dollar continues and if interest rates don’t rise to compensate the buyers. That leads directly to the question of whether China will continue to subsidize the US “consumer” economy by buying US treasury certificates with all the dollars we send them for the stuff they ship to WalMart. > China likes getting paid for their goods, and they like keeping their factories humming and their workers paid, and they’ll go pretty far to keep the racket going. But the trouble is, they can’t just hang on to what they’ve got – now hundreds of billions in US debt. They have to keep buying more of it. Because if they stop, the decline of the dollar will only get steeper. If that happens, the treasuries they own will lose value. Americans will have fewer and fewer dollars to spend at the WalMart. China will have to start laying off workers. . . . > The holidays are literally upon us. It has now become an unofficial six-week hiatus in the US when little real business gets done besides the final point-of-sale for business set up during the previous eight months of the year – the mad rush to clear all that WalMart Christmas inventory. Sometime before George Bush’s second innaugural, it’s going to become obvious that the financial game is over. The Chinese (and the Japanese) are going to halt their purchases of US treasury debt, if not sell off some of what they already own. Interest rates will have to rise a lot more than a chickenshit quarter basis-point. And the US housing bubble will pop with a roar that will be heard around the world. At the same time, more oil-exporting nations will demand to be paid in Euros. > Thus, the second Bush term will kick off with the dollar losing its long-held position as the world’s reserve currency. This will open the door for a wholesale drop in the US standard of living. Before the winter is over, the American middle class will find itself behind on the mortgage payment, drowning in heating bills, and goggling at three-dollar jars of peanut butter on those WalMart shelves. > > \ > > December 6, 2004 > The Christmas shopping frenzy is upon us and I wonder if this is going to be the very last blowout of the the credit card era. If it’s true that American families are virtually maxed out on their credit card debt, and they still go on a spree to buy Christmas presents, then they will hit a very hard wall in early 2005 when those first bills roll in. Because something is happening in the financial markets, Mr. Jones. > The currency markets have entered a supernatural realm of instability. The dollar can’t continue to hemorrhage value without interest rates going up. Who would continue to hold, not to mention buy, US dollar denominated securities with the dollar losing two cents a week against the Euro and the British Pound? While it’s true that nobody – namely, China, Japan, Europe – wants to see the US economy tank, neither do they want to write off billions in order to help American dog groomers and NASCAR marketing executives enjoy an artificially high standard of living. Only significantly higher interest rates will induce foreingers to hold onto US Treasuries. > The US government and the Federal Reserve have played a dangerous game of jiggering deficits and ridiculously low interest rates in order to keep the public buying stuff. Retail trade (i.e. shopping) is now roughly 70 percent of the US economy, but it is not an activity that produces anything of value. The productive part of the economy has either been allowed to rot away, or has been sent to other lands. The deficit-and-interest-rate jiggering game managed to levitate a non-productive economy for a few years. But with the dollar now in free-fall, the runaway train of “consumerism” fueled by incredibly easy credit is poised to go off the rails. > Credit, after all is money and vice versa. The dollar only represents what a consensus thinks it’s worth. And if that consensus begins to think that the dollar represents X-million families of overfed slobs driving endlessly around munching on Cheez Doodles and slurping iced beverages between stops at the WalMart and the Home Depot to wield Discover cards buying things made by Chinese factory slaves who can’t drive around endlessly listening to Snoop Dog while enjoying ice cold beverages – well, they might decide that America is not such a good investment. > Investment, after all, is a judgment about future prospects. What are the prospects of a nation that spends way more than it produces, has hocked itself to the eyeballs, and has to pay around two billion a month premium for military security in the Middle East in order to keep those overfed, over-extended “consumers” gassed up for easy motoring between the WalMart and the Home Depot in the suburban gloamings. > So here’s how I call it. Interest rates shoot way up in the first half of 2005. A lot of people sitting on multiple thousands in credit card debt go bust. A lot of mortgage holders find themselves living in McHouses they can’t keep paying for. End of housing bubble. Beginning of fire sale of US residential real estate (and other assets, including stock, SUVs, and signed limited edition Thomas Kinkade prints). Cratering of “consumer” demand. Impressive job loss. Ultimately, deflationary depression. > Everybody will blame George W. > All this and Peak Oil, too. ☹ ---
**Author:** ![Tuckerfan](https://avatars.discourse-cdn.com/v4/letter/t/eada6e/32.png) [@Tuckerfan](https://boards.straightdope.com/u/Tuckerfan)\ **Post date:** [December 29, 2004, 4:18am UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/38 "2004-12-29T04:18:27Z")
It should be noted that discount retailers have been reporting disappointing holiday sales so far. . . ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [December 29, 2004, 4:21am UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/39 "2004-12-29T04:21:30Z")
See related thread at [http://boards.straightdope.com/sdmb/showthread.php?t=287264](http://boards.straightdope.com/sdmb/showthread.php?t=287264). ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [December 30, 2004, 3:58pm UTC](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853/40 "2004-12-30T15:58:35Z")
What percentage of our debt is held by foreign governments? I had always understood the majority of the national debt was in the form of treasury bonds, and other loans given out by private Americans/American banks/corporations… Anyways, I seem to recall quite a lot of WWI debt that European Great Power ended up refusing to pay back to the United States (was one huge reason the American public didn’t want to get involved in WWII, those loans that Europe defaulted on hurt us, and bad) before I think we should allow certain countries to call in our debt we should charge them the old debts they refused to pay, with interest. Of course that’s just as ludicrous as the situation here actually happening. [Previous page](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853.md?page=1) [Next page](https://boards.straightdope.com/t/the-great-debt-call-in-our-us-foreign-owned-debt/278853.md?page=3)