US Economy: Record Global Sell-Off of U.S. Debt Could Trigger Economic Collapse

Foreign governments buy U.S. debt because of the dollar's status as the world's reserve currency – the American economy has long been viewed as a safe place to invest. That's why the amount of U.S. debt held by foreign nations has increased more than six-fold since 2001.

But that's all changing now – events that could spark a U.S. economic collapse are already underway…

The Wall Street Journal revealed recently that China – the largest holder of U.S. investments – is ridding itself of its U.S. government bonds at the fastest rate in history.

In fact, a global sell-off of epic proportion is taking place.

Central banks in China, Russia, Brazil, and Taiwan are selling U.S. government bonds at such a pace that it's caused the most dramatic shift in the $12.8 trillion Treasury market since the 2008-2009 financial crisis.

Foreign official net sales of U.S. Treasury debt maturing in at least one year hit $123 billion in the 12 months ended in July, according to Deutsche Bank Securities Chief International Economist Torsten Slok, reported WSJ. That's the biggest decline since data started to be collected in 1978.

By contrast, foreign central banks purchased $27 billion of U.S. notes and bonds in the prior 12-month period.

Foreign central bankers' massive offloading of U.S. debt sends this dangerous signal…

Read more: WARNING: Record Global Sell-Off of U.S. Debt Could Trigger Economic Collapse

U.S. Debt Problems "casting Global Shadow" - says EU's Barroso

Persistent doubts about the ability of the United States to resolve its debt problems are putting U.S. credibility in the world at stake, European Commission President Jose Manuel Barroso has warned.

The White House won a brief respite this month when the Republicans backed down after a 16-day government shutdown. But the temporary fix has only pushed the problem into early 2014, with no comprehensive solution in sight.

Barroso, who heads the European Union executive and has been at the frontline of efforts to resolve Europe's debt crisis over the past three years, said the uncertainty was making investors risk averse, with potentially damaging economic consequences.
 
 Read more: U.S. Debt Problems "casting Global Shadow" - EU's Barroso

US Debt Ceiling: China Calls for World to Be 'De-Americanised' - by Jijo Jacob

China's official news agency has called for the creation of a "de-Americanised world", saying the destinies of people should not be left in the hands of a hypocritical nation with a dysfunctional government.

Heaping criticism and caustic ridicule on Washington, the Xinhua news agency called the US a civilian slayer, prisoner torturer and meddler in others' affairs, and said the 'Pax Americana' was a failure on all fronts.

The official news agency of China, which is seen as the pretender to the world's superpower crown, then rubbed in more salt, calling American economic pre-eminence just a seeming dominance.

"As US politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanised world," the editorial said.

It asks why the self-declared protector of the world is sowing mayhem in the financial markets by failing to resolve political differences over key economic policy.

Note EU-Digest: Obviously China is worried, because if the US goes bankrupt so does China, which will see the billions the US is indebted to them go up in smoke. Unfortunately "the ball" will probably be kicked forward again by the US political establishment, but this won't solve the US's incredible debt problem, only delay it.

Read more: Debt Ceiling: China Calls for World to Be 'De-Americanised' - IBTimes UK

The 4 policymakers who could decide the 2012 election - by Ezra Klein

 "For every one-percentage-point decline in euro-area growth, history suggests growth in the rest of the world will take a 0.7% hit, 'with the U.S. seeing a somewhat smaller decline than other parts of the world.'"

That's David Wessel summarizing some research from JPMorgan. The main channel of contagion is financial. Exports to Europe are 1.2 percent of GDP. That's not nothing, but it's not that much. The bigger problem is that "European banks have lent more than $6 trillion to the rest of the world, twice as much as U.S. banks." Indeed, "European loans to the U.S. amount to about 10% of U.S. GDP."

I used to say that Germany's Angela Merkel and the European Central Bank's Mario Draghi were going to decide who America's next president was. If they saved the euro zone, it would be Barack Obama. If they let it fail, it would be Mitt Romney. Then Europe stabilized and I stopped saying it.

For more: Wonkbook: The 4 policymakers who could decide the 2012 election - The Washington Post

US economy: The Year of the Treasury - by Bradley Davis

Mark it in the history books: 2011 was the year of the U.S. Treasury.

Investors stampeded into U.S. debt, sinking the 10-year benchmark yield to end the year below 2% for the first time on record. Earlier in the year, the yield fell to its lowest level since the 1940s.

But what was it about Treasuries that attracted investors? Certainly not the domestic political situation, wherein fighting over a routine raising of the so-called "debt ceiling" led to an unprecedented downgrade of the U.S.'s top credit rating.

For more: The Year of the Treasury - Barrons.com

U.S. National Debt Clock : Real Time

The US National Debt keeps ticking away !

For a look at the real-time debt clock click here: U.S. National Debt Clock : Real Time

US Economy already $14 trillion in Debt: Both Congress and the President begin the battle over the debt ceiling - by Kenneth Schortgen Jr

As the new 112th Congress begins its session under Republican control in the House, one of the first things they will need to address is the debt ceiling that is closing fast on the current legal limit.

The Democratic Congress of the last two years passed several measures to raise the debt ceiling to $14.2 Trillion dollars, but according to the US Debt Clock, is going going to pass $14 Trillion within weeks. Without the ceiling being raised, the government may actually shut down since by law, the Treasury would not be able to borrow money to pay for programs or expenditures.

This debate is so important early in 2011, that both the President and the incoming Congressional leaders have spoken out on the issue over the Christmas holiday.

For more: Both Congress and the President begin the battle over the debt ceiling - National Finance Examiner | Examiner.com

Will debt spotlight shift from Europe to US?

Citigroup's chief economist said this week the euro zone turmoil may be the "opening act" of a debt crisis that could even infect the United States and Japan, while a top Federal Reserve official said it was "a wake-up call" for America.
 
In that environment, US ailments -- a rising ratio of debt-to-gross domestic product, one of the highest peacetime budget deficits, strapped state governments, and banks that many fear are still "too big to fail" -- make investors queasy.

While the prospect of US default is remote, that doesn't mean the United States will always be able to borrow money at less than 3% for 10 years, as it can today."Americans are kind of sleeping at the switch," said Joseph Quinlan, chief market strategist 

For more: Will debt spotlight shift from Europe to US? - Reuters -