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| Debt burden tests global investments - What, no bond buyers? |
| 2009-01-17 |
| President-elect Barack Obama will be testing the limits of the global markets' ability to absorb U.S. government debt by piling an $800 billion stimulus plan on top of more than $1 trillion in new obligations already scheduled this year. Wall Street analysts worry that China, Japan and other nations that readily helped finance U.S. debt in the past won't have the willingness or wherewithal to buy what will amount to three to four times the previous yearly record of Treasury-issued debt of $455 billion. Some analysts predict a calamity such as the failure of a U.S. bond auction, which could drive interest rates sharply higher just as the economy is struggling to recover. Others are less worried, but evidence is mounting that the debt burden could rise to unmanageable levels. The mere mention by Mr. Obama in a news conference last week that the U.S. could run deficits exceeding $1 trillion for several years sent a shudder through the Treasury bond market, where those deficits must be financed, sending interest rates temporarily higher. A bond auction failed last week in Germany, which has comparatively little debt to finance, raising concerns about whether the United States faces similar problems on a much larger scale. Wall Street rating agencies Moody's and Standard & Poor's Corp. said they are closely watching the surge in debt and the willingness of foreign investors to finance it. "Fiscal risk has noticeably increased," said S&P analyst Nikola G. Swann, while "the country's exposure to a change in international investors' willingness to add to their portfolio of U.S. dollar assets grows with each year." On Thursday, the Senate Budget Committee will hold a hearing on the so-called debt bubble and is expected to ask a panel of economists about the ability of world markets to finance the growing U.S. obligations. "In a world where you are running a deficit profile of staggering proportions, it all comes down to the confidence of foreign investors," said Alex Jurshevski, a strategist at Recovery Partners who expects the Treasury to borrow as much as $2 trillion more this fiscal year to finance its bank bailout program as well as budget deficits that are burgeoning as a result of the recession and the massive stimulus Mr. Obama is planning. |
| Posted by:Besoeker |
| #2 If the government can keep alternative investment vehicles (stocks & corporate bonds) in the tank, whatever funds people do have to invest will end up buying government bonds. |
| Posted by: Glenmore 2009-01-17 13:59 |
| #1 How does the Treasury bond market effect the state and corporate bonds? My guess would be that higher interest rate T bills would drive the interest rates for all bonds up which would add to the debt obligation of the issuers and drive down their ability to spend, no? |
| Posted by: AlanC 2009-01-17 11:55 |