Wednesday, December 24, 2008

U.S. debt approaches insolvency

From AsiaNews - Snippets Below

In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days.

The American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers.

In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP of 13.811 trillion dollars. Public debt in 2007 was therefore 76.75% of GDP. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security).

In 2007, 61.82% of America's public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP.

In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar.

After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them.

LINK: U.S. debt approaches insolvency; Chinese currency reserves at risk

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