How Will The United States Fund Their Deficit Spending Over the Next Decade?
The United States currently possesses a total national debt load of just over $12 trillion dollars ($12,097,698,782,543.93 to be exact).
According to various estimates, the country will have around $20 trillion dollars in debt by 2020, due to an expected string of massive deficits between now and then.
Where will this money come from?
According to China, the United States definitely shouldn't count on foreign governments to front them the money.
In recent comments, Deputy Governor of the People's Bank of China, Zhu Min, stated that it would be "impossible" for foreign governments to double their holdings of US Treasuries.
Zhu pointed out that the United States' shrinking current-account gap is eroding the supply of dollars overseas, which in turn leads to the purchase of less US treasuries by foreign governments.
In addition, multiple countries have been actively diversifying their forex reserves out of US dollars and Treasuries, and into commodities (such as gold) and other assets.
China is currently the foreign government that owns the largest amount of US debt, and they are clearly making it known that they will not be providing the US government with an unlimited fountain of cash to fund their deficit budgets.
The US government will very likely add approximately 7-8 trillion dollars to their debt load over the next decade or so.
The US government can borrow from various sources, including:
-themselves (borrowing from Social Security, etc)
-mutual funds, hedge funds, pension funds, etc
Foreign governments will likely only be able to put a small dent in the the borrowing needs of the United States over the next decade.
Social Security is not expected to be the source of funds that it has been over the past decades.
I would expect that the US will start being more aggressive when it comes to asking investors, hedge funds, mutual funds and pension funds to purchase future debt offerings, similar to what is currently taking place in Japan (the Japanese government advertises on cabs, etc)
This probably won't come ANYWHERE close to covering the total amount of money that will be needed, which means that the Fed will likely need to purchase trillions of dollars worth of Treasuries.
Where will the Fed get the money?
By printing dollars.
The likely result? A crumbling dollar and inflation.
Given that the United States has to raise SO much money over the next decade, I just don't see how this is avoidable.
7-8 trillion dollars is an unbelievable amount of money, and it is going to have to come from somewhere.
Source: ShanghaiDaily.com - Harder to Buy US Treasuries
Source: United States Debt Clock
Filed under: General Market News