The United States is dependent upon the kindness of strangers, to borrow from the character Blanche DuBois in “Streetcar Named Desire.”
Specifically, we need foreigners to buy our debt to finance our $1 trillion-plus budget deficits.
Indeed, “emerging economies are keeping the debt-challenged United States economy on life support,” Harvard economist Ken Rogoff writes in The New York Times.
That idea was reinforced by recent news that China added to its Treasury holdings during April for the first time in six months. China is the largest foreign holder of U.S. debt, with $1.15 trillion of Treasurys, the most it has ever possessed.
In his opinion piece in the Times, Rogoff notes that the next leader of the International Monetary Fund (IMF), where he was once chief economist, will almost certainly be a French woman — Christine Lagard.
And the No. 2 will almost certainly be whomever President Barack Obama chooses.
“In a world where markets already pay more attention to what happens in China than in Europe,” it makes no sense to keep emerging markets out of the IMF power equation, Rogoff says.
Ironically, though, the global financial turmoil has sent investors to Treasurys for safety. And most experts expect China to continue snapping them up, as its trade surplus generates massive dollar reserves.
“There is simply no safer place to be right now than the U.S.A.,” Bank of Tokyo-Mitsubishi UFJ economist Chris Rupkey tells Bloomberg.
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