Clock ticking down on US debt time bomb
With US debt over $31 trillion and US credit market liquidity problems, the risk of a financial implosion is growing by the day
As milestones go, the US national debt surging past the US$31 trillion mark is especially personal for Haruhiko Kuroda and Yi Gang.
The leaders of the Bank of Japan (BOJ) and People’s Bank of China (PBOC), respectively, run the overseas institutions sitting on the largest stockpiles of US government bonds. Japan has $1.23 trillion and China roughly $1 trillion.
In all, Asia holds about $3.5 trillion of Washington’s IOUs – and at arguably the worst moment possible.
Between US inflation at 40-year highs, the Federal Reserve tightening the most aggressively in 28 years and the dollar trading at sky-high levels, news that Washington’s debt load is nearly twice the size of China’s annual output is decidedly unwelcome.
For now, the dollar is holding its own, with its traditional role as safe haven remaining intact. Yet US debt reaching nosebleed levels means “the party’s over, everyone,” says Brian Riedl, senior fellow at the Manhattan Institute.
He was speaking for investors everywhere. But it is not just a shortage of safe havens – there are precious few havens, period.
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President Xi Jinping’s team has been increasing financial ties with Russia at a moment of maximum tension between Vladimir Putin and Biden’s White House. Nikkei Asia reports that China has stepped up efforts to move some debt into offshore tax havens where any future US sanctions can’t reach.
But concerns about Washington’s fiscal trajectory are bound to increase among America’s top bankers here in Asia. When former US president Donald Trump signed a $2 trillion tax cut in 2017 and as Biden now ramps up infrastructure spending, they rely on savings from Japan, China, Hong Kong, South Korea, Taiwan, India and others.
The odds that Asian central banks might add to their dollar exposure are dwindling fast, even amidst a dearth of ready alternatives. The kind of selling the US is seeing from China raises eyebrows in Asia – and tempts smaller dollar holders to attempt to front-run any bigger moves by Beijing and Tokyo to dump dollars.
asiatimes.com |
