US Interest Rates: Heading Sky High??

If Professor Krugman's analysis is correct, the US is headed into a period of increasing interest rates. (Read his NY Times column.) Here's an excerpt from the column.

Excerpt Begins

My calculations keep leading me to a 10-year bond rate of 7 percent, and a mortgage rate of 8.5 percent — with a substantial possibility that the numbers will be even higher. Current rates are about 4.3 and 5.8 percent, respectively; you can see why the I.M.F. is worried about "financial market disruption."

Excerpt Ends

Part of the excerpt gives me serious pause . . . "a substantial possibility that the numbers will be even higher." As everyone knows, the US is spending and living beyond its means. The US government is financing its current expenditures by mortgaging off its children's future by selling billions and trillions of US debt to foreign nations. I believe that Japan alone holds some $650B+ in US treasurys. For the life of me, I don't know why Japan wants to hold onto that level of greenbacks. I, for one, would like to see that Koizumi government start a slow and systematic dilution of its foreign currency reserves. Japan does not need to hold onto more than half a trillion dollars.

Of course, one of the problems of foreign nations selling off their holdings of US treasurys will be a massive increase to US interest rates in order to attract much needed capital to finance the current budget. And, with higher interest rates, the government 'crowds out' private companies seeking capital investment.

I guess the US government has some serious problems ahead. I don't think the problems associated with its current situation within Iraq comes close to the level of problems and the amount of pain that its twin deficits will cause the country in the months, years and decades to come.

I wonder if the Japanese are still interesting in purchasing the state of Hawaii?? And what about the state of California?? Would the US be willing to sell those two states to Japan in order to pay off some of its national debt??

Who's to say that in the year 2020 and beyond that countries won't need to sell off parts of itself in order to generate much needed revenues??