Quote:
Originally Posted by Yakk
Currently, the US is borrowing about 665.9 billion dollars/year to fund it's economy from the rest of the world.
To put it on scale, this is roughly 6% of the US's GDP. The US's real growth rate is about 4%/year. In other words, for every 1$ of growth in the US economy over the last year, the US borrowed 1.50$ from outside it's borders (well, technically, it borrowed 1.50$ more than it lent).
This is obviously unsustainable. What I'm wondering is, when is this going to turn around? Does the US government have a plan to turn this around?
Thanks.
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Can you give some historical perspective here? Without that, this appears to me to be simply a yelling "doom and gloom" by providing figures that sound alarming but actually mean nothing, at least not to the casual reader (or do sound alarming to the casual reader based on lack of knowledge of the mutual dependancy of the dollar to foreign currency - especially with regard to those foreign countries who have purchased US debt and whose very own economies rely on the value of the dollar.)
Foreign countries do not (by and large) purchase US debt as a long term investment strategy, hoping to collect on interest payments and receive the principle upon maturity. Rather, the intent is to hold US interest rates lower (the price of debt has an inverse relationship to interest rates btw) by purchasing it so that US companies can borrow more money, at lower rates, and in turn invest it back into that countries economy by way of purchasing that counries products.
As interest rates do inevitably rise (as they are now), the interest payments on previously issued debt sill seem meager compared to the higher interest paid on newly issued debt (therefore demand will increase for the new - interest rates will fall). Get it? It's a cyclical thing.