Does the U.S. Government always have the ability to repay its debts?
The United States Government’s ability to repay its debts is directly related to its willingness to meet its obligations to creditors. The U. S. has always been regarded as a debtor of the highest rank because it has never shown any signs of flinching from payments. As such, it holds the highest ratings from agencies like Moody’s, Fitch, and Standard and Poor’s because of its credit history and payments of interest and principal as they become due. The country has designed its annual budget in such a manner that a part of it is appropriated for the payments it needs to pay for securities issued.
It has never defaulted even during economic slowdown. As a result, the U. S. Tresuries are very attractive to investors who view the instruments as one of the safest financial risks in the world. The nation’s untarnished reputation as a debtor has always been upheld, enabling the United States to obtain funds thru issuance of securities whenever it runs short of cash. 2. What possible dangers are posed by having U. S. Treasury bonds being held by foreign buyers? The possible dangers associated with having U. S. Treasury bonds held by foreign investors are: • Foreign governments, owning a large portion of U.
S. Treasuries, may be able to influence the government’s decision-making; • Foreign governments who are hostile to the country may use dummy corporations to buy the treasury bonds in order to use them to their advantage in case the U. S. will be plunged into financial difficulties; • Foreign governments may hold influence on the nation’s national and foreign economic policies; • Foreign corporations may use their holdings to demand for special treatment and undue privilege on bidding processes for government projects; • Foreign individuals with substantial holdings of U. S.
Treasury bonds may exert pressure on government officials in order to gain advantage in business transactions; • There’s also the chance that the U. S. government will lose some sovereignty to other nation-creditors; and • In the unlikely event of a bankruptcy, the United States Government will be indebted to a lot of foreign governments (like China and Russia), individuals and corporations, each with its own set of agenda. The government could be temporarily taken over by foreigners whose style of government may be very different from that of the current American system. Also, the U. S.
is a very influential country and these foreign creditors could manipulate the situation to further their ends. Further, foreign creditors can take control of government-owned corporations, establishments and agencies, dissolving and displacing American workers in the process. There would be confusion, chaos, and poverty in the country. References Bureau of the Public Debt: United States Department of the Treasury. Retrieved May 22, 2008, from http://www. publicdebt. treas. gov/ Major Foreign Holders of Treasury Securities. Retrieved May 22, 2008, from http://www. treas. gov/tic/mfh. txt