Suffering economies are not exactly news anymore as we come to terms with the recession rocking most corners of the globe.
But it does appear that the shifting impact of the crisis will continue to show itself in new ways.
Take, for example, China’s decreasing interest in buying U.S. debt.
Like much of the rest of the world, China is having its share of economic troubles. According to The New York Times, the Chinese government is planning a $600 billion stimulus package to recharge the national economy.
This may have long-term benefits for the Chinese people; however, the move could mean bad news in the United States.
China is reportedly the largest foreign holder of U.S. debt, currently holding more than $1 trillion.
But since the economic downturn, China has shown less interest in buying our debt – partly because it needs money for its own stimulus projects.
So What Does China's Debt Disinterest Mean for Americans?
The more buyers interested in holding our debt, the lower the returns received by the holders.
So, when China was frantically gobbling our debt, returns fell to near-zero levels.
As China’s interest wanes, fewer entities will hold American debt and those groups will likely expect greater returns on what they have.
This could force the U.S. government to raise key interest rates in an effort to generate more income to pay off debt holders.
And, as you may have guessed, an increase in those interest rates could translate to increased interest rates for all borrowers, including individuals looking to buy a car or a home.
This may seem like more gloomy news in a season of plenty of economic gloom, but, according to the NYT, there may be a bright spot in the future.
Apparently, America could benefit long-term from having its debt spread more evenly among debt holders.
However, if the shift happens too quickly, the short-term effects could outshine any potential long-term gains.
This may not be the worst news from the global recession, but it certainly isn’t the best, either.
This entry was posted on Friday, January 23rd, 2009 at 3:21 pm and is filed under Bankruptcy and the Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.