I'm not sure "foreign" held is an extremely important distinction, while it does suggest that the capital is less sticky. A large percentage of the Japanese (2.5x GDP) sovereign debt was held by Japanese nationals, but even that friendly capital will leave town, when it looks like the debt may implode under it's own mass. World debt markets are closely linked. The US housing bubble, was exported around the world and the collapse likewise was felt all around the world.
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I have discussed banking before and the system of fractional reserve banking is a double edged sword. The ability to re-lend bank deposit capital multiple times, supercharges economic growth (growth is generally a good thing). However that growth comes with a cost, as in price instability, so higher growth but with boom/bust cycles.
The Fed was established precisely because the congress could not be trusted with interest rate decisions (the gas pedal for the money supply and indirectly the economy), but the Fed seems pretty conflicted having to report to congress regularly, and being funded by congress, so congress could starve them. At the moment the Fed is doing a manly job of trying to prevent deflation, but have severely distorted the free market. The relatively hot stock market in recent years is a direct result of the Fed expanding the money supply, and holding interest rates artificially low, so perhaps another bubble. If you can't earn a decent return on savings, and are afraid of housing, dividend paying stocks look pretty attractive. Housing has been looking attractive to me for a while (I've been telling a young friend to buy for a year now), but he like others are still gun shy from experiencing the recent housing bubble (he got burned and had to short sale out of a house he owned, because he was upside down in it and needed to move to change jobs.).
These days it certainly looks like Bernanke is giving congress cover to not clean up their taxing/spending act, by driving the anemic (2%) economic growth and moderating unemployment, with his hyper expanded money supply through quantitative easing, buying back government securities, and near zero interest rates.
Another thing that is making it different this time is the tighter linkage between international economies, thanks (or no-thanks) to globalization. So gone are the days when one country could game their currency for trade advantage. Nowadays even Switzerland is printing money, in an Alice in Wonderland attempt to run as fast as it can to stay in the same (relative) place. Japan has recently thrown down the money printing gauntlet, trying to talk down their Yen.
Of course maybe I'm, all wrong.... and this is far from a perfect system when it is working well. At the moment is it not working very well.
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Good luck, every generation has to step up at some point and become the adults. The Boomers have not left a very good legacy, and the current trajectory looks unsustainable (to me). At some point either we step up and stop the out of control spending, or our lenders will do it "to" us.
I remain impressed by how much debt this administration has managed to roll up in a brief time, but this deficit spending is not uniquely a democrat behavior, they just seem more aggressive about it.
JR
PS: Perhaps another bullet point showing the total debt per household of around $140k... or not. The big numbers are too large to grasp and seem abstract even to politicians, so reducing them down to per-person or per-household is a powerful tool to help communicate the scope of the debt and spending in personal terms. I also like the comparison of total debt to total GDP for useful perspective, regarding our aggregate ability to service and pay down that debt.