What happens if other countries cut off our credit?

I figure this is the really big shoe that hasn’t dropped yet.

The United States has gotten away with some unsound economic policies for over 25 years because other countries believe our nationally economy is fundamentally sound and we’re always a safe investment. So we’ve always been able to borrow money overseas and the dollar, while fluxuating, has always been relatively strong.

What happens if the world takes a look at our current economic problems and says “uh oh” and decides it would be prudent to pull its money out of the United States until things are better. In my opinion, that would be the real crash. If we lost easy access to global money, we’d have the BIG depression.

Thoughts?

Given the amount of stuff other countries sell to us, they may destroy their own economies. Or at least slow them down significantly.

Johnny makes a good point. Also, much of the current trouble stems from issues (e.g., mark-to-market accounting) that do not show any inherent weakness in the economy as a whole.

I’m not sure that Johnny’s point is quite as good as all that. If the reason for not lending to the US is the inability of the US to repay, doesn’t that suggest that the US might also have a problem paying for imported goods?

Furthermore, if I selll goods to the US and am paid in dollars, I can only do three things with those dollars: (a) buy something produced in the US, (b) lend the dollars to someone in the US, ideally the US government, or © give or sell the dollars to someone who wants to do (a) or (b). If the US isn’t producing things I want to sell, and if loans to the US don’t get repaid, I’m not terribly interested in selling goods to the US anymore, because the dollars with which I will be paid are basically no use. I’m going to look for new markets.

Option D - buy up US assets and property.

The thing is I keep reading about the credit crunch. Businesses are worried about the financial stability of other businesses so they don’t want to lend them any money. And that concern about financial stability becomes a self-fulfilling prophecy as businesses decline because of the inability to conduct the routine borrowing that businesses need.

That’s business on business. But nations do the same thing. As I wrote, we routinely borrow money from other countries to finance our economy. What happens if the lenders in those countries start worrying about America’s financial stability and we experience the same kind of credit crunch?

I’m not suggesting it’s going to be a premeditated plan. But it could happen that a lot of individual lenders might separately decide that it’s a bad month to buy American treasury bonds.

If they “pull their money out” then we can’t pay them, they get nothing, and they are screwed.

It would be like if I owed you $50k and was making $300/mo payments to you. You were getting them on time, but you decide that you are nervous tht I might lose my job, so you demand payment of the $50k immediately. Fine, demand all you want, but I don’t have $50k. And you know that I don’t have $50k.

So, now instead of $300/mo. you have nothing…

I’m not sure what “pull their money out” actually means?

Wouldn’t they need alternatives … a very big matress, lots of gold, better countries/markets to invest in??