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Fallout: The Financial Crisis

Foreign investors wary of U.S. bonds

John Dimsdale Jul 20, 2009
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Fallout: The Financial Crisis

Foreign investors wary of U.S. bonds

John Dimsdale Jul 20, 2009
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TEXT OF STORY

Kai Ryssdal: Take one recession, a banking crisis, and two wars. Total up the costs and the bottom line is likely to top more than $9 trillion in borrowing to the federal balance sheet. Financing that debt means the Treasury Department’s going to have to sell a lot of bonds, mostly to well-heeled foreign investors. That, in turn, means Timothy Geithner has become something of a traveling salesman. And as Marketplace’s John Dimsdale reports from Washington, the Treasury secretary’s been finding some skeptical customers.


JOHN DIMSDALE: Foreigners own nearly half of the government’s publicly-traded debt. So, over the past few weeks, Geithner has been to China, Europe and the Middle East, trying to convince governments and corporations the U.S. is still a good, safe place to invest.

But with this year’s deficit already at a record trillion dollars, some foreign investors are worried about the soundness of their cash. And Geithner isn’t the only one facing skeptics. At a speech last Friday, a White House economist Lawrence Summers fielded this question from a Chinese journalist.

JOURNALIST: So how will you assure the Chinese government and also the world investors their investment in the United States is safe?

Summers said the biggest threat to U.S. creditworthiness is a collapsing economy. That, he said, justifies deficit spending right now.

LAWRENCE SUMMERS: We need to rescue this economy first. But we are very focused, and the president has made very clear, his commitment to bringing down the rate of debt.

With the whole world in recession, the dollar is still a safe haven. Economic consultant Everett Ehrlich says that works in the U.S.’s favor.

EVERETT EHRLICH: There’s an element of the old doctrine of mutually assured destruction that we apply to thermonuclear war that goes on here.

If foreigners abandon the U.S., that would threaten their own exports, Ehrlich says.

EHRLICH: On other hand, if they get view that some of their number are going to do so, then no one wants to be the second person, or worst the last person out the door, which is how runs and panics start.

And just the scenario the traveling Treasury salesman is trying to avoid.

In Washington I’m John Dimsdale for Marketplace.

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