I've been hearing, for some while as a matter of fact, that foreigners are going to bail on our debt. The reason given of course is that the dollar is collapsing.
I guess most of these people haven't looked at a chart recently. The dollar isn't collapsing, on the contrary it's soaring. Anyone who bought our debt back in July not only got a 3.5% coupon (give or take) but they enjoyed a 22% rise in the value of the dollar. Even recently as bond rates have collapsed buyers of US debt managed to score a 7.5% gain in the value of the dollar.
Since I think the dollar is destined to go much higher in this deflationary environment I don't see buyers of our debt bailing until the dollar tops out.
I don't see that happening as long as the powers that be refuse to let any broken companies go bankrupt and as long as unemployment continues to rise.
As long as the bailouts continue these zombie financial companies will continue to act as a huge drain on the money supply.
Economics 101: too little supply equals higher prices.