from phil

something to chew on from the transcript of greenspan’s appearance before congress this week, brought to my attention by phil……last night we were talking about what recourse we have against a social security that won’t have any money for us by the time we’re ready to retire. this is probably why no politicians want to discuss this thorny question. they don’t want people who are somewhat younger and more capable of possibly sticking a boot in their ass to start realizing they are paying, not for their own retirement, but some corporate/government largesse.
but what can you do, not pay taxes?

I’m particularly concerned about foreign debt and the amount that foreign individuals and foreign countries hold of our debt. I have some numbers that I find to be frightening. The idea that 70 percent of last year’s record $373 billion deficit were financed by foreign investors concerns me — a 33 percent increase in the past two years. Japan holds almost $600 billion of our debt; China holds almost $150 billion of our debt. And I’m concerned that this leaves us a possible victim to economic problems that are outside of our control. And add to that the fact that the billions of dollars that we’re paying on interest on this debt is not even being paid — or part of it is not even being paid to folks right here; but instead, this becomes the biggest foreign aid program that we have in this country. And I’m worried about what may transpire because of this. And I’d like to hear your thoughts on it.

MR. GREENSPAN: Well, I presume, Congressman, you’re concerned about the issue of what would happen if they started to sell these securities.

REP. THOMPSON: Well, to sell them, to threaten to sell them, or to somehow decide that we’re not such a good — (chuckles) — investment and do something else with the money. I think it’s got some interest rate ramifications.

MR. GREENSPAN: Yeah, we’ve looked at that in some detail.

First of all, remember when you’re talking about the issue — let’s take the issue actually of selling securities and see what happens. We’re dealing not only with the size of the treasury debt owed to the public, but we’re dealing with a whole big block of securities in the United States which is in several multiples. And they — all securities compete with each other.

So there’s no question that if there is a sale of foreign assets, which largely are held by the central banks or the ministries of finance, that has — it has an effect, but it’s very small. And one of the reasons is not only is the amounts of money, as large as they are, as you’re quoting, relatively modest against the aggregate markets in this country, but they also tend to be disproportionately short-term instruments. And short-term instruments are huge in the United States, and since the liquidity is such that their effects are relatively modest. And remember that short-term rates are to a large extent controlled by the Federal Reserve’s basic policies. Now, obviously, we cannot suppress rates without expanding our balance sheet inordinately, creating huge increases in the money supply and creating the problem that your colleague had mentioned previously, but within a fairly broad area, we can and do.

So granted, the numbers look very large, but —

REP. M. THOMPSON: Well, it’s near — it’s fast approaching $2 trillion on our $7 trillion debt. So —

MR. GREENSPAN: Well, I mean, I will grant you there will come a number at some point which will disturb me. But at the moment, and in the foreseeable future, it is still a problem for the future not for the current period.

REP. M. THOMPSON: Thank you.






One response to “from phil”

  1. b Avatar

    >the liquidity is such that their effects are relatively modest

    When I’m liquid, the effects can be profound.

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