In doing so, foreign investors kicked off a process that has left the financial markets and the dollar in a tizzy. By taking up only 10 per cent of what the US government was trying to sell.
Americans have been spending more than they are saving, and are asking the rest of the world to pay for the gap. In return, the US gives us a piece of paper which states that the American government will pay us back in 30 years.
But the US has done precisely the opposite. It has continued issuing pieces of paper in return for real money. This scam is only a problem if foreigners lose confidence in the US’s ability to pay - or in the US’s bona fides.
Up to now, the world has taken the Americans at their word. But that has now changed and the financial markets are getting fed up with the flood of paper promises coming out of the US.
Investors are now saying that they will only finance the US if either (a) the dollar falls dramatically before - not after - they lend money to the Yanks or (b) the rate of interest the Americans are prepared to pay rises considerably.
Americans, can and will devalue their currency to inflate their way out of debt.
