31–38 of 38 posts
Earlier quoted context omitted.
The AAA credit rating is in terms of US dollars. It would make no sense for the Fed to not have an AAA credit rating.
The AAA credit rating is in terms of US dollars. Sometimes. Sometimes not. http://en.wikipedia.org/wiki/Credit_rating http://en.wikipedia.org/wiki/Equivocation_fallacy
The Credit Rating wikipedia page does not show him to be wrong. Also, the fallacy linked to is not applicable. Would you care to elaborate?
Earlier quoted context omitted.
The AAA credit rating is in terms of US dollars. Sometimes. Sometimes not. http://en.wikipedia.org/wiki/Credit_rating http://en.wikipedia.org/wiki/Equivocation_fallacy
Sometimes. Sometimes not. The Credit Rating wikipedia page does not show him to be wrong. Also, the fallacy linked to is not applicable. Would you care to elaborate?
Was linking to the Credit Rating wikipedia page intended to show someone to be wrong? The Credit Rating wikipedia page indicates that credit rating can be defined in more than one way.
Would you care to elaborate?
Do you know what equivocation is?
The US debt accumulation process runs like this.
A Chinese exporter of electric goods (for example) has its revenues in US dollars but his costs are mostly in Yuan. As he receives money from his American customers, he sells dollars to buy local currency to pay his workers, to pay taxes etc. Without Chinese central bank intervention the collective activity of exporters would drive Yuan rate up vs dollar very quickly and that would make their exports less competitive.
Chinese central bank wants to keep exports competitive, so it buys US dollars from the exporters at artificially high rates. Its 'foreign currency reserves' keep growing as long as there are exporters bringing in piles of export revenues in dollars. All these dollars needs to be bought up in order to keep Chinese exports competitive. And then all these bought dollars need to be invested, the US Treasuries being the natural place for it.
This all works as long as US consumer is buying. But the US consumers have stopped buying like they used to for many years and some say forever. No major revenues are expected from exports to the US. No need to buy dollars for the Central Bank.
In fact, the opposite is likely to happen. Chinese domestic consumption is growing fast. Very soon domestic Chinese market will become the biggest target for the world's exporters, just as US post-war consumer was. Chinese central bank may want to stimulate local consumption and capital inflows by switching to 'strong Yuan' policy, just like US did with its dollar. There will be no point of spporting the USD and holding dollar-denominated securities (US treasuries) for them.
To summarize, Chinese investment in US treasuries is not a result of desire to find a 'safe heaven' for extra money. It is because they need to park all that greenbacks the accumulated during years of keeping the Yuan down. Today they do not need to support USD anymore. They have no reason to buy US debt either. Prepare for a nasty surprise.
Two things you can do with US debt: 1. Buy precious metals such as gold and silver and then take physical delivery - COMEX is required to accept US debt as an equivalent to cash. This would raise the price of silver significantly - you can just about corner the market for silver with about $5B to $6B. Buying even a fraction of the gold that China has stated they wish to acquire would send the gold price soaring. 2. B…
This is not as far fetched as it sounds. The savings rate of Chinese Gen X'ers are 0. They are voracious consumers. If Chinese goverment decided to fund local debt instead of foreign debt, U.S. manufacturing could conceivably come back and sell into China in the future.
Earlier quoted context omitted.
The simple answer is, they don't have a choice. Some number of dollars flow into their country every year. Some number of dollars flow out. The difference effectively ends up in the hands of the government. They have to do something with it... because if they do nothing with it, they are effectively exchanging Chinese goods for nothing more than cheaply printed pieces of paper. They government can't spend US dollars…
That's silly. They could certainly spend them in China. Many people there would happily accept US dollars. That's why they have so many of them in the first place, business selling products to Americans. And there are always ways to exchange. All investing them does is get them even more US dollars. If the problem is that they can't spend US dollars in China, how does using those US dollars to collect more US dollars…
If the Bank of China were to spend US dollars domestically, it would be exactly equivalent to printing Renminbi and spending it. It would be just like a stimulus plan. There's nothing different. Remember, Bank of China must print all the Renminbi necessary to keep the exchange rate at the peg. So watch this:
1. Chinese government spends 100 million USD for public works project 2. Businesses receive 100 million USD, want to convert it to CNY, bring it to USD-CNY exchange market 3. Government prints CNY to soak up 100 million USD
We are right back to where we started, except now there is more CNY in circulation.
Now if we relax the assumption in step 2 that businesses want to convert to USD upfront, we still have the same problem, because it just delays the conversion. While USD is in circulation, there will be some converted to CNY at every transaction (for wages and taxes and things like that).
If the government wanted to enact a stimulus plan, and I think they already did, then they should just do it in CNY.
Note: China does not maintain a strict CNY-USD peg. CNY is pegged to a basket of currency.
Earlier quoted context omitted.
Sometimes. Sometimes not. The Credit Rating wikipedia page does not show him to be wrong. Also, the fallacy linked to is not applicable. Would you care to elaborate?
The Credit Rating wikipedia page does not show him to be wrong. Was linking to the Credit Rating wikipedia page intended to show someone to be wrong? The Credit Rating wikipedia page indicates that credit rating can be defined in more than one way. Would you care to elaborate? Do you know what equivocation is?
Earlier quoted context omitted.
The Credit Rating wikipedia page does not show him to be wrong. Was linking to the Credit Rating wikipedia page intended to show someone to be wrong? The Credit Rating wikipedia page indicates that credit rating can be defined in more than one way. Would you care to elaborate? Do you know what equivocation is?
[deleted]
>> Sometimes. Sometimes not.
> you replied that it is not.
No. I replied, "Sometimes. Sometimes not," intending to imply that it is not always defined in only one particular way, and that to do so would be to fallaciously equivocate. http://en.wikipedia.org/wiki/Equivocation_fallacy
Start paying off the debt that China currently holds and take American dollars off of the market, which would cause their currency to increase in value because of the peg. Continue this policy with other countries that peg their currency to the American dollar as well.
Enact the FairTax which would allow corporations to produce goods and services here with a 0% corporate tax rate instead of importing those goods into the United States.
Increase tariffs on countries who peg their currency to the American dollar, to produce and export goods cheaper, so that the United States can have the competitive advantage, with corporations, on the global market thus creating goods and services here.