November 28, 2008: America's financial crisis and a recession looming on the horizon have some European analysts wondering whether buying U.S. treasury bills may become a high-risk loan. America's national debt has doubled in only eight years to total 10.65 trillion dollars. If corporate and private debt is included, the United States is awash in nearly 50 trillion dollars of debt. (The amount is even larger if as yet unfunded benefits already earned in the U.S. Social Security System are factored in.) The U.S. government is now making interest payments of 19 billion dollars a month to its creditors – more than 200 billion dollars a year.

The current crisis will only see America's debt situation worsen. The national debt figure does not include the 700 billion dollar bailout fund approved by Congress in September. During the current quarter U.S. Treasury Secretary Henry Paulson needs to borrow 550 billion dollars, and Scott Minerd of Guggenheim Partners predicts that America's budget deficit for 2009 will run as high as 1.5 to 2 trillion dollars.

Some wonder whether America's growing national debt makes the country a credit risk. According to Pierre Nahm, an advisor for hedge funds, the U.S. won't go bankrupt because a country has the option of simply printing enough money to pay its debts. In so doing, inflation takes its toll on the debt, and debtors would be repaid in devalued dollars.

Creditors apparently think that America will not swallow her wallowing debt so easily. The rate of "credit default swaps" (CDS) for U.S. treasury securities increased fourfold after the 700 billion dollar bailout was passed. In other words, the risk premium for 10 million dollars of treasury securities increased from 10,000 to 40,000 dollars, reflecting less confidence in the U.S. government's ability to repay its debt.

America's debt problem has some experts wondering if the Secretary of the Treasury doesn't influence the credit ratings of agencies like Moody's. Moody's continues to give the U.S. government high credit ratings, when the growing national debt – especially with the current financial crisis – would appear to warrant a reassessment. However, any downgrade would likely contribute to an increased lack of confidence in the U.S. government as a debtor.

For the time being, it seems that America's largest creditor nation – China – has no choice but to continue to invest its dollar earnings in the United States. European bond markets are currently too small to absorb the amounts that China wants to invest. Any sudden move by the Chinese to move assets into other currencies would lead to a devaluation of the dollar – and China's substantial currency reserves held in U.S. dollars. As long as the price of oil on world markets is pegged to the dollar and the Chinese continue to hold their dollar-denominated assets and invest in U.S. treasury securities, the United States will be able to keep running up the red ink. However, if either if these two factors changes, the dollar is in for rough times, and along with it America's ability to finance its huge budget deficits.