The Wall Street Journal ran an article today which highlighted the indifference, if not the false sense of security, of many investors when it comes to our soaring deficits. The article substantiated the complacency by making comparisons to the 1980's in which heightened debt fears back then never amounted to the horrific recession economists had once speculated.
This time could be different, the WSJ points out, and although actual debt to GDP is running at a 4.5% clip versus the record 6% level in '83 and the national debt which now represents a smaller portion of GDP compared with the '90's, the budget is actually less sustainable.
Succo has pointed out on several occasions that the percentage of U.S. treasury debt held by foreigners, (noted by the WSJ to be at 40% which we believe to be a low estimate) compared with the Reagan era when foreigners held about 15% will inevitably become problematic. Minyans should be mindful of cracks in the FX markets, rising commodity prices and interest rates if Japan and others begin to feel the pinch.
It should be noted that Mr. Greenspan feels "the increased sophistication of the markets" means the U.S. can sustain much larger run-ups in debts than, say, a few decades ago, hence no crisis concerns at the Fed. Whew!
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