Professor Elam

Some of you are reading about Enron. Enron created Special Purpose Entities. Enron moved the liabilities it created off the Enron balance sheet to the SPE balance sheets.  So Enron never owned up to their real liability. Then Enron recognized all the revenue for years and years ahead using questionable mark to market accounting. 

Congress is borrowing over a trillion dollars for various stimulus plans. This money must be borrowed via Treasury notes and bonds.  This money is coming from overseas making the US even more of a net debtor. 

There is, handily, no US balance sheet, at least one that is published. So there is no explicit debt covenant, a line in the sand, a current ratio, a debt equity ratio, whatever beyond which it cannot go. Rather there will finally be explicit nyets. 

What if the oil exporters start demanding gold for oil?

What if the Chinese want stated purchases of their exports in exchange for buying more US bonds?  Whether the Chinese demand this or not, it will eventually have to happen, our Chinese imports fund their purchase of our bonds. Now that our consumption has decreased, the game of musical chairs is coming to an end. Eventually if not already, the Chinese will have fewer of our import dollars to fund anything.