Why would drop in foreign confidence in us ability to repay

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Reference no: EM13186516

A Wall Street Journal article, "As Fear of Deficits Falls, Some See a Larger Threat," describes the following threat of a high U.S. budget deficit: [T]he investors who finance our deficits by buying Treasury bonds and bills, especially the foreigners who buy a larger share of them than ever, will question our ability to repay them, and balk at lending more-triggering a big drop in the dollar and much higher interest rates.
a. Why would a drop in foreign confidence in the U.S. ability to repay debt lead to a drop in the dollar and much higher interest rates?
b. In what way are higher interest rates and a lower value of the dollar bad for the U.S. economy?

Reference no: EM13186516

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