Fears rise that Japan could sell off U.S. debt

Some analysts say that risk to U.S. economy unlikely

Seth McLaughlin
The Washington Times
3/24/2011

Some lawmakers and market analysts are expressing rising concerns that a demand for capital by earthquake-ravaged Japan could lead it to sell off some of its huge holdings of U.S.-issued debt, leaving the federal government in an even tighter financial pinch.

Others say a major debt sell-off by Tokyo is unlikely, but noted that the mere fact that questions are being raised speaks volumes about the risks involved in relying so heavily on foreign investors to fund U.S. debt.

“This natural disaster in Japan concerns me that it could speed up what’s coming, because they are the second leading buyer of our debt,” Sen. Rand Paul, Kentucky Republican, told The Washington Times. “Small degrees of differences in how much they buy of our debt, I think, can make a big difference in interest rates that we have to pay people to buy our debt.”

With the federal government having piled up $14.2 trillion in debt, budget experts are warning that the country is on an unsustainable fiscal path. Congress, they say, must find cuts in all areas of the budget, while reforming the entitlement programs — Social Security, Medicare and Medicaid — that are the biggest drivers of national spending.

Congress has passed short-term spending bills this year that nibble on the edges of government spending, and President Obama has offered a 2012 spending plan that also saw spending rise.

Concerns about the financial plight facing Japan, which trails only China among foreign holders of U.S. Treasury debt, aren’t helping the picture.

The article continues at The Washington Times.

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