Question

6. About 46% of all US debt is owed to foreign governments.

a. List what you think would be two advantages to borrowing money from foreign governments by the US.

b. List what you think would be two disadvantages to borrowing money from foreign governments by the US.

c. In your own opinion, how could the fact that we owe foreign countries money we’ve borrowed from them be a possible preventive measure against the war (technological, economic, or military)?

Answer 1

Explanation:

(1). The advantage of borrowing money from the foreign governments by the US is the access to the financial access. The issuance and selling of the bonds by the US government could be bought by the foreign governments and this could help when the domestic demand for the US bonds is low. Another benefit of borrowing from the foreign governments is the establishment of meaningful relationship and commitment with the investors in the foreign countries to deliver the borrowed funds. This will help to negotiate and reduce the rate of interest for the dedication and establishment shown by the US government in repaying the debt.

(2). The US government could face the uncertainty of the exchange rate of the US dollar against the foreign currencies especially if the debt is denominated in terms of US dollars. The US government could end up paying more to the foreign governments if the currency exchange rate depreciates. Another potential downside is that the borrowings put excessive burden of interest obligation where the US government have to dedicate a large amount of funds to pay the interest.

(3). By having such a relationship between the US government and the foreign countries, the foreign countries will try not to incite any problems against the US government because they know that the US government needs to repay the debt that has been borrowed from them which is significant. There could be potential loss of repayment and the payment of interest to the foreign investors if the foreign countries were to engage in any form of war against the US.