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WSJ - Washington is denied in a calm debt (August 22, 2008, Page A15) was an article that made me sit down and my personal opinion on the problem U.S. "debt".

Successive governments of the United States does not itself raise more than 9.5 trillion dollars in treasury bonds outstanding. Japan, Asian Tigers, China and later helped to his collection. Take, for example, for Japan to quickly find why Japan is the largest buyer of assets denominated in U.S. dollars:

Japan is a net exporter. If you want to acquire energy and raw materials to produce the need for the user to import a dollar. When sold abroad, the United States receive dollars, many times the value of raw materials and energy. Your home providers and the workers they need to pay in yen. Therefore, they must sell yen to buy U.S. $. If they sell a lot of dollars in the dollar prices tend to increase yen.

If the price of dollar-yen is rising, prices of Japanese products exported in the form of dollar tends to increase. If they become too expensive, no one buys. If one buys we have a recession.

Thus, the dollar price of yen (USD / JPY exchange rate) is low, the Japanese yen against the dollar and stores a dollar in their vaults or sell them to serve. Borrowers Natural dollars is the U.S. government. Everyone wants loans granted to creditworthiness. If the U.S. government supports the takeover of the United States is larger than it should be exactly the sum borrowed. United States is the driving growth for the entire Asia region for over 20 years.

U.S. duly paid its debts as they mature. Public debt in 2008 represents over 60% of the annual GDP. U.S. financial system is in danger?

In my opinion, and the administration of Bill Clinton (the guy has led nation) in the bushes, has prepared an exit strategy from emergency. "In January, the U.S. Treasury finally auctioned the first sign of a new round of inflation. With his penchant for stating the name of one of the beautiful new products have the Wall Street professionals call these notes, TIPS, an acronym for Treasury Inflation-Protected Securities. "Wrote William F. Ford in ABA Banking Journal, Vol. 89, 1997 *. Today, August 22 2008, the difference in the yield on the benchmark 30-year bonds the Treasury is 4.47% against 2.04% for newspapers for advice (Source: Bloomberg *).

Council consists of two parts linked to inflation and real interest rates. Well established in the treasures regular income, regardless of inflation, you pay adjusted for inflation. The higher the rate of inflation over the coupon at maturity. In terms of net cash flows of bonds worth less than the normal inflation is high. TIPS do not lose value when inflation rises. I chose Tips cons ordinary bonds to 5 of 5 times.

In the eighties, we have seen rampant inflation of over 15% in the United States. We can see again. If (I did not say when) includes inflation, the Fed let it until it is over 10%. All markets rise, with the exception of commodities and bonds. Oil prices fall to $ 50 a barrel (which is above 500% over 10 years, when she fell $ 10 in December 1998! - Source: WTRG Economics *), and 30-Year rates of treasury bills (in the discount of 3% to 15%) decreased by 20% of the value nominal. Source: Pre-trip *.

What does a smart government do? A smart government in a number of questions auction demand TIPS for almost two trillion dollars and slowly and quietly, it will redeem the obligations of ordinary 20 cents instead of 9.5 trillion to 2 trillion dollars U.S. bonds of TIPS outstanding. And who cares the guy to make a dollar 50 cents!

Technically, the U.S. government does not back burden debt, although the effect seems to be the same. Some creditors may not be happy. One consequence could be a change in the structure of reserves International. Whereas now about 63% of $ 6 trillion global foreign exchange reserves are in U.S. dollars, 27% euro and 10% in all other currencies combined This is an operation to "cleanse" the debt in euros to be won at the expense of the dollar. If U.S. Dollar against all races (75, where it is now 50 or even lower).

Asian economies could have a significant Write to the amount of reserves, but the developments that have successful in the past quarter century, probably more important than the costs incurred. Probably go stagflation times stronger than ever, ready to make another bubble inflation, hopefully, never seen.

Mordekai Rurzag

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* Because the editorial guidelines, I had to remove links to information sources

About the Author:

Mordekai trades forex and writes related articles since 1997.

Article Source: ArticlesBase.com - Will Usa Default on Their Debt?

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