Japanese Crisis Could Jack U.S. Interest Rates

March 16, 2011 12:23 AM

The earth quake/tsunami/nuclear crisis in Japan could have more than a ripple effect on U.S. credit markets, says David Kohl, Virginia Tech emeritus ag economist. Kohl spoke this morning at the Professional Dairy Producers of Wisconsin meeting here in Madison.

“Japan is now the number one financier of U.S. debt,” says Kohl. If the Japanese start pumping billions more yen into Japan to stabilize their own economy during this crisis, it means they’ll have less money to loan to the United States.
That means the United States may have to bid up interest rates to get the money it needs to sustain its capital needs and continued debt financing. And those higher interest rates will trickle through the U.S. credit markets, causing borrowing costs to go up.
Kohl believes credit markets will eventually tighten anyway to rein in an expected rise in inflation with our own Fed pumping billions more into the economy. So he has been urging producers to lock in currently favorable interest rates for some time now.

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