Mar 30

Japan’s Selling or Cutting Back on Buying U.S. Debt Would be a Major Financial Problem

The federal government’s continued reckless and profligate spending has resulted in an astounding and soon to be unsustainable debt level that is adversely impacting our economy and threatens even our standard of living and way of life. Irresponsible politicians in Washington including largely but not exclusively Congressional Democrats and Obama, continue to be dismissive of this impending financial apocalypse.

Making matters even that much worse now is the calamity in Japan, a country that is the second largest purchaser of U.S. debt after China. If Japan decides to substantially cut back on their buying of our bonds or even starts selling some of this debt in order to make available the massive capital needed for their country’s reconstruction, this could be financially problematic and costly for us.
This should serve as another important wake-up call to our politicians (and Americans in general) that we must expeditiously and substantially reduce government spending in effective and meaningful ways and get our financial house back in order.

Fears rise that Japan could sell off U.S. debt
Some analysts say that risk to U.S. economy unlikely
Seth McLaughlin   The Washington Times  March 24, 2011

U.S. Treasury Secretary Timothy F. Geithner said he doesn’t think Japan’s troubles will affect U.S. borrowing costs and interest rates. (Bloomberg)

U.S. Treasury Secretary Timothy F. Geithner said he doesn’t think Japan’s troubles will affect U.S. borrowing costs and interest rates. (Bloomberg)

Some lawmakers and market analysts are expressing rising concerns that a demand for capital by earthquake-ravaged Japan could lead it to sell off some of its huge holdings of U.S.-issued debt, leaving the federal government in an even tighter financial pinch.

Others say a major debt sell-off by Tokyo is unlikely, but noted that the mere fact that questions are being raised speaks volumes about the risks involved in relying so heavily on foreign investors to fund U.S. debt.

“This natural disaster in Japan concerns me that it could speed up what’s coming, because they are the second leading buyer of our debt,”Sen. Rand Paul, Kentucky Republican, told The Washington Times. “Small degrees of differences in how much they buy of our debt, I think, can make a big difference in interest rates that we have to pay people to buy our debt.”

With the federal government having piled up $14.2 trillion in debt, budget experts are warning that the country is on an unsustainable fiscal path.Congress, they say, must find cuts in all areas of the budget, while reforming the entitlement programs — Social Security, Medicare and Medicaid — that are the biggest drivers of national spending.

Congress has passed short-term spending bills this year that nibble on the edges of government spending, and President Obama has offered a 2012 spending plan that also saw spending rise.

Concerns about the financial plight facing Japan, which trails only Chinaamong foreign holders of U.S. Treasury debt, aren’t helping the picture.

“They have a lot of bonds,” former Sen. Pete V. Domenici told The Times this month after testifying before Congress about the country’s mounting debt woes. “Are they in such bad trouble that they are not going to buy anymore? If they don’t, who do we look to?”

Asked point-blank last week if he thought Japan’s troubles could affect the U.S. borrowing costs and interest rates, Treasury Secretary Timothy F. Geithner told a congressional hearing, “I do not.”

Japan, which held some $886 billion in U.S. debt in January, is “a very rich country, with a very high savings rate,” Mr. Geithner said.

But some two weeks after the earthquake, uncertainty still reigns over whether Japan will reduce its purchases of Treasury debt and other foreign assets — a decision that could force the U.S. to pay higher rates on its securities to attract buyers and possibly drive up U.S. interest rates.

But judging from Japan’s response to the 1995 Kobe earthquake, Ward McCarthy, chief financial economist at Jefferies & Co., said that it is unlikely.

“It’s not unreasonable to think their appetite will probably diminish somewhat simply because Japan is going to have to fund its reconstruction by issuing more debt,” he said. “So we are going to have more competition from Japan itself going forward.”

Still, lawmakers remain concerned that the amount of foreign-held debt represents a bigger financial gamble than people realize.

“Many people I’ve been talking to in Washington are worrying about Japan because they have nearly 200 percent of their GDP in debt,” Mr. Paul said. “We’re at 100 percent and some people worry that this might not necessarily be a problem for Japan, but more of a problem for us if Japan in this crisis cannot buy our debt any longer.”

Karl Denninger, founder of, said that could become a real concern in the coming months, as the heavy reconstruction costs inJapan threaten to slow down or even reverse the current flow of goods and services out of the country, and dollars coming into the country.

“The impact of this is widely unappreciated and I think it is a mistake to ignore it,” he said.

Mr. McCarthy said perhaps more importantly, “in the bigger picture, we’ve painted ourselves into a corner.”

“Should an emergency or disaster like the one that happened in Japan, happen in the U.S., we simply have put ourselves in a situation where it will be very difficult for us to come up with the funding to respond in an appropriate way. There are countless reasons why Congress should do the right thing, make some difficult choices and reduce the budget deficit,” he said. “Unfortunately, they apparently don’t see it that way.”


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