In 1969, foreign governments held only $10.3 billion of our public debt, and this ownership represented a mere 3.7% of the bond market. However, over the past 25 years we have continued to buy more and more consumer goods from these foreign countries, and they have used these profits to buy more and more of our country. As of 2004, foreign governments now control a whopping 43.9% of our publicly traded bonds, and this percentage represents a figure of $1.886 trillion. Of these governments, Japan is by far our largest creditor, and we owe the Japanese government $683.3 billion as of July 2005. The United States should be extremely concerned about letting any one country have this much control over our financial affairs.

After all, the Japanese were responsible for the surprise attack on Pearl Harbor. Unfortunately, it was the Americans who later launched two nuclear attacks on Japanese soil, obliterating the towns of Hiroshima and Nagasaki. Whether or not our use of nuclear weapons was justified is beside the point. The Japanese have not forgotten these events, and neither should we.

It is highly unlikely that the Japanese government is secretly plotting our financial ruin. Since we are now trading partners, it is in the best interests of one to consider the best interests of the other, and this interdependence helps promote peace. In theory, foreign investment is actually beneficial to our economy, and that is why most economists do not view it as a problem. However, the Japanese government has some serious debt problems of its own, and Japan is hardly in a position to be lending other countries money.

It does not take a graduate degree in economics to realize that you should not borrow money from someone who is even more strapped for cash than you are. We cannot rely upon Japan to continually finance our national debt, because a day may come when the Japanese government will need this money back. In fact, the Japanese government continues to purchase our securities in an effort to stabilize its own debt, which means that these bonds should be viewed as a form of collateral rather than an actual investment. Unfortunately, if economic pressures ever forced Japan to sell a significant portion of its bonds on the open market, interest rates in this country would rise to dangerous levels and our economy could potentially stall.

Sources:

FY 2006 Budget of the United States Government (PDF - page 270)
U.S. Treasury - Major Foreign Holders of Treasury Securities (TXT)

« Prev | Blog | Next »