Friday, March 6, 2009

U.S. Govt Crowding Out International Borrowing

A while back I brought up the idea that the U.S. government was borrowing so much money that some other governments might begin to have trouble borrowing for their own purposes. The world has a finite amount of cheap capital, and with the amount of money that our government and several others are trying to borrowing to prop up financial firms and wager on Keynesian stimulus that the supply of those funds might dry up.

After a conversation with Robert Wenzel of the blog EconomicPolicyJournal, I feel more confident that this may occur. I have also predicted inflation, which I also expect to see overseas first.

Then, I ran across this interesting chart (HT: Objectif Liberte)

Original image source here, and data here.

What we see here is that the required rate of interest for these EU countries compared to Germany has been skyrocketing. In late 2007, there is little difference between the worst countries and Germany (with the lowest cost of capital). What this implies is that either these countries are all becoming worse credit risks compared to Germany or that the pool of resources available to them is dwindling.

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