Many politicians and investors still believe that the ever increasing U.S. debt is not a problem. Whether our current debt of 10 Trillion dollars (about 65% of our GDP) is a problem or not, will be left for another post.
Yet one affect of this debt that is usually not talked about is the shift of ownership of US assets created by this debt.
What do you think China and all the petroleum-exporting countries are doing with their dollar reserves (besides buying Treasuries)? They are investing their reserves in dollar-denominated assets and buying big parts of U.S. companies and real estate.
Some people have speculated that one of the reasons why real estate in New York City has not gone down in the housing-bubble bust is because of the immense amount of petro-dollars being used to buy real estate in the area.
Here are a few more numbers for you to ponder about:
U.S. debt held by foreigners as of mid-2007:
– Foreign holdings of U.S. equities: $5 trillion
– Foreign holdings of U.S. corporate bonds: $3 trillion
– Foreign holdings of U.S. Treasury securities: $2 trillion
– Foreign share of U.S. Treasury securities: 45 percent
Therefore, the cost of the current excessive American consumption is costing Americans their most valuable assets.
Is it worth it ? Or should we cut spending and raise taxes to solve our problems?
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