Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The foreign governments etc aren't holding dollars per se they are holding dollar denominated debt.
Sure, rest in ease that China holds most of our debt. It's true that they are currently mostly in treasuries and supposively China held almost 20% of Fannie and Freddie debt. BUT, it doesn't mean they can't sell them gradually to get some liquidity (which would lower the demand on treasuries which would pull up long term rates - bond prices down means rates up) AND your forgetting that we STILL have a trade deficit that's growing monthly... on the tune of $700+ billion a year.
So, unless the trade deficit changes drastically in the coming years... China, and other foreign trade partners will still have US dollars to burn... Whether they put them in treasuries, goods/services, or American Assets are still unknown.
Our trade deficit with China runs on the tune of $20billion a month... and their foreign US dollar reserves is close to or around $2 trillion. It's pretty sad that one Country has so much power over the US. The rest of the world pretty much owns US.
So, I wouldn't rest in too much comfort and play down this threat. They are currently holding our debt (in mostly non defaultable/convertable debt - treasuries).... AND... still taking in billions of our dollars when WE Americans continue to buy products Made in China.
We better hope that China and other nations continue to take our debt. If they don't... and if a major player starts trading in their worthless treasury notes... there can very well be a selling spree. The stock markets are irrational... I hope China and other major creditors have a cool head. The Fed in that case, would have very limited control on inflation.... of course unless the US defaults (worse case scenario) or prints out money to pay creditors.
Humanoid,
I would think you out of all people would understand the severity of our foreign trade deficit. I heard on the news the other day that some major Chinese toy companies have gone under. Especially those that serve the US markets. As a result, there were many disgruntled Chinese workers that demanded compensation. In turn, the "government" has promised to pay off back wages. When has the "government" ever paid off back wages in the US?
Anyhow, as the Chinese economy falters from our reduction in consumption, many more factories will probably close out there... and as a result... China will eventually have to cash in some of those US dollar reserves to keep themselves alive. It might not be something the government would want (as selling treasuries will reduce of the value of their holdings)... but it may turn out to be a necessity to keep people employed. They Will have to worry about China First, and then worry about US stability.
Being the creditor nations kick ass vs. being the debtor...
STUPID AMERICAN COMPANIES, our Government, and stupid US ... We sold ourselves out
Sure, rest in ease that China holds most of our debt. It's true that they are currently mostly in treasuries and supposively China held almost 20% of Fannie and Freddie debt. BUT, it doesn't mean they can't sell them gradually to get some liquidity (which would lower the demand on treasuries which would pull up long term rates - bond prices down means rates up) AND your forgetting that we STILL have a trade deficit that's growing monthly... on the tune of $700+ billion a year.
Hi chuck22b,
If China sells them its dollar neutral. They cannot demand instant dollars. There is always someone who will buy bonds because its ultimately the FED. The question is at what rate will anyone buy new bonds from the Fed? When the Fed is the only buyer its inflationary. However again with high interest rates there would not be inflation. Inflation is completely up to the Fed. It always has been and always will be. Its not an accident. The Fed can always control inflation if it wants to do so. No one holds a gun to their head to make them print it. The one thing the Fed cannot do well is stop deflation since it requires people to take on debt.
Quote:
So, unless the trade deficit changes drastically in the coming years... China, and other foreign trade partners will still have US dollars to burn... Whether they put them in treasuries, goods/services, or American Assets are still unknown.
Does it make much difference? The class now giving themselves new loans have addresses all over the world. They have a condo in 10 countries. They are nominally American. If a plutocrat with an American passport living abroad buys large fries from you with his new wad from the debt swap will it make any difference if someone in China did so after cashing out of their bond?
Quote:
Our trade deficit with China runs on the tune of $20billion a month... and their foreign US dollar reserves is close to or around $2 trillion. It's pretty sad that one Country has so much power over the US. The rest of the world pretty much owns US.
I agree its sad but it will make little difference to you except for which asset class they will choose to clobber. American plutocrats may want to cut into China's nest egg by keeping inflation going. Perhaps they would rather fleece the American middle class with deflation and lose out a little to the Chinese who will also be in on the spree.
Quote:
So, I wouldn't rest in too much comfort and play down this threat. They are currently holding our debt (in mostly non defaultable/convertable debt - treasuries).... AND... still taking in billions of our dollars when WE Americans continue to buy products Made in China.
Its not a threat, its already a reality. However the fact of the next reality is the money supply is completely up to the Fed. The Fed can completely halt inflation. If you have a dollar, you will be fine. Unfortunately you may not have a job to earn one.
Quote:
We better hope that China and other nations continue to take our debt. If they don't... and if a major player starts trading in their worthless treasury notes... there can very well be a selling spree. The stock markets are irrational... I hope China and other major creditors have a cool head. The Fed in that case, would have very limited control on inflation.... of course unless the US defaults (worse case scenario) or prints out money to pay creditors.
China forex reserves exceed US$1.9 trillion (http://chinadaily.com.cn/china/2008-10/14/content_7105710.htm - broken link) http://www.census.gov/foreign-trade/...lease/exh1.pdf
Its easy to control inflation. 25% interest rate. Done. China of course would buy much of the US however what is the difference? Will Chinese hire Chinese instead of Americans to run US corporations? It seems to me Americans are already hiring Chinese. Inflation is not up to China. Its up to one agency. It possible that they will cause inflation, no argument but it will be an explicit and willful act on the part of that agency.
Quote:
Humanoid,
I would think you out of all people would understand the severity of our foreign trade deficit. I heard on the news the other day that some major Chinese toy companies have gone under. Especially those that serve the US markets. As a result, there were many disgruntled Chinese workers that demanded compensation. In turn, the "government" has promised to pay off back wages. When has the "government" ever paid off back wages in the US?
Anyhow, as the Chinese economy falters from our reduction in consumption, many more factories will probably close out there... and as a result... China will eventually have to cash in some of those US dollar reserves to keep themselves alive. It might not be something the government would want (as selling treasuries will reduce of the value of their holdings)... but it may turn out to be a necessity to keep people employed. They Will have to worry about China First, and then worry about US stability.
Being the creditor nations kick ass vs. being the debtor...
STUPID AMERICAN COMPANIES, our Government, and stupid US
If China sells them its dollar neutral. They cannot demand instant dollars. There is always someone who will buy bonds because its ultimately the FED. The question is at what rate will anyone buy new bonds from the Fed? When the Fed is the only buyer its inflationary. However again with high interest rates there would not be inflation. Inflation is completely up to the Fed. It always has been and always will be. Its not an accident. The Fed can always control inflation if it wants to do so. No one holds a gun to their head to make them print it. The one thing the Fed cannot do well is stop deflation since it requires people to take on debt.
Does it make much difference? The class now giving themselves new loans have addresses all over the world. They have a condo in 10 countries. They are nominally American. If a plutocrat with an American passport living abroad buys large fries from you with his new wad from the debt swap will it make any difference if someone in China did so after cashing out of their bond?
I agree its sad but it will make little difference to you except for which asset class they will choose to clobber. American plutocrats may want to cut into China's nest egg by keeping inflation going. Perhaps they would rather fleece the American middle class with deflation and lose out a little to the Chinese who will also be in on the spree.
Its not a threat, its already a reality. However the fact of the next reality is the money supply is completely up to the Fed. The Fed can completely halt inflation. If you have a dollar, you will be fine. Unfortunately you may not have a job to earn one.
Its easy to control inflation. 25% interest rate. Done. China of course would buy much of the US however what is the difference? Will Chinese hire Chinese instead of Americans to run US corporations? It seems to me Americans are already hiring Chinese. Inflation is not up to China. Its up to one agency. It possible that they will cause inflation, no argument but it will be an explicit and willful act on the part of that agency.
I agree the US is stupid.
Actually your right gwynedd1,
Only one entity controls USD inflation (money supply), the US Central Bank. They can sell treasuries to the point where there can be considerably higher interest rates (to keep the money supply low).
The problem though, to absorb the amount of dollars potentially out there from the Trade Deficit/Foreigners converting treasuries, the Fed can pretty much send our economy into a severe contraction.
IMO, I think the Fed prefers slight inflation rather than our current deflation.
Humanoid,
I would think you out of all people would understand the severity of our foreign trade deficit. I heard on the news the other day that some major Chinese toy companies have gone under. Especially those that serve the US markets. As a result, there were many disgruntled Chinese workers that demanded compensation. In turn, the "government" has promised to pay off back wages. When has the "government" ever paid off back wages in the US?
In the US we have unemployment. Regardless, trade deficits aren't necessarily negative. This is not a clear cut issue and professional economist aren't in agreement on its effects. Either currency will return in some form or it won't. If it returns well then there is no problem, on the other hand if it doesn't return then essentially other nations have given us products in return for paper.
I do think the current trade deficit is too high though, but we've been running a trade deficit for a long time.
Anyhow, you are changing the topic and you area again talking about the "dollars out there". The US has already absorbed the dollars and continues to absorb them by selling debt. This is partially what has caused the rapid expansion of credit over the last 7 years or so. The US can't re-absorb the dollars!
You talked about the new dollars China causing inflation. Why? Are you suggesting if we had balanced trade with China we would have inflation?
Quote:
Originally Posted by chuck22b
They can sell treasuries to the point where there can be considerably higher interest rates (to keep the money supply low).
Again, the FED actions change the money supply which in turns changes interest rates. Not the other way around. You keep stating the opposite of what is the case.
it has happened b4. you go down to the bakery with a wheel barrow full of money to buy a loaf of bread. you also dont save any bek its worthless tomarrow.
Actually your right gwynedd1,
Only one entity controls USD inflation (money supply), the US Central Bank. They can sell treasuries to the point where there can be considerably higher interest rates (to keep the money supply low).
The problem though, to absorb the amount of dollars potentially out there from the Trade Deficit/Foreigners converting treasuries, the Fed can pretty much send our economy into a severe contraction.
IMO, I think the Fed prefers slight inflation rather than our current deflation.
-chuck22b
Hi chuck22b,
We are in perfect agreement. My point is that people need to mind all assets classes and hedge against it. I don't recommend people dump all their dollars anymore that to hold dollars elusively.
A good example of our government's duplicity is when they hauled in oil execs into congress. Consider that even if oil demand doubled and went to about $60 it was monetary policy that made it go to $90 which triggered a flight to inflation hedges which in turn drove oil to $120. Our government was responsible for 2/3s of it. They were also the one's pushing for a chicken in every pot, every man in their own house. It is what they continue to make it.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
