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Japan is in no position to help finance America's deficit

Just suppose Japan were to pull out of its investment in U.S. Treasuries.

Tuesday, Aug. 16, 2011

Thinking the unthinkable: Sell U.S. Treasuries

AP

The idea that Japan would ever dump the $900 billion it holds in U.S. Treasuries, the second-largest foreign ownership after China, has long been just that — an idea never seriously entertained.

The long-standing argument paints a horrific picture of the consequences: The dollar would crash, world markets would be sent into a tailspin and the postwar military and political alliance between the U.S. and Japan would be shaken.

But after Washington’s credit rating was downgraded for the first time ever earlier this month — from AAA to AA+ by Standard & Poor’s — some daring advocates are voicing that taboo idea: Why not sell Treasuries?

Those playing devil’s advocate aren’t Japan’s mainstream policymakers by any means.

But they aren’t totally fringe either.

The government and ruling party officials have repeatedly said Japan won’t sell U.S. bonds, and instead will keep buying them.

The common wisdom is that a weak dollar would prove devastating to the Japanese economy by making it more difficult for Toyota Motor Corp., Sony Corp. and other pillars of corporate Japan to sell their goods overseas.

Peter Schiff, chief executive of Euro Pacific Capital, a New York-based investment company, said the current accumulation of debt by the U.S. government is unsustainable.

"The more money the world lends to America today, the more money they’re going to have to lend tomorrow," he said in a telephone interview.

"It’s a giant Ponzi scheme. Nobody is ever going to get their money back."

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Filed under economy economics politics American debt Japan U.S. Treasuries Peter Schiff