The Dollar

This article, from Asia News, has some interesting data points on US government debt (U.S. Debt Approaches Insolvency; Chinese Currency Reserves At Risk).  Although I am not so sure on the source that is providing the predictions and, as with all predictions/forecasts/palm readings, you should take it only for what you feel it is worth.  The factual information, however, is nicely footnoted.

In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP of 13.811 trillion dollars. Public debt in 2007 was therefore 76.75% of GDP. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security).

By way of comparison, the Maastricht accords require member states of the European Union (EU) to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.

Also of note:

In 2007, 61.8% of America’s public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.3% of GDP.

As with all predictions, take it for what you think it is worth:

In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency.  This would involve, in the first place, a valuation crisis for the dollar.  A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them.  In a currency crisis, China risks losing much of the value of its accumulated currency reserves.

This does not even include any planned fiscal stimulus packages relying on deficit spending set to be introduced next year.


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