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Stop Being Wrong About China Buying Our Bonds

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Re: Stop Being Wrong About China Buying Our Bonds

#101

Post by Friterie »

kamjam wrote: post #90
Friterie wrote: post #83

Earlier quoted context omitted.

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. Paper is very easy to debase, but if you want you can go to the "best" "schools" in the world and they can tell you why it's such a good idea... and maybe one day you can pick up a job at a central bank. And if you're really lucky your peers will prefix your name with a sobriquet of h…

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. So what, we go back to the bartering system? It's difficult to trade my skills as a programmer for food directly. Not sure what the rest of your statement is saying...

Indirect exchange was not invented with paper pushing central bankers... Read some economic history, even a bad one and you'd know that already. Aside from French experiments with paper during their revolution, hyperinflation is very much a modern, paper induced phenomenon.

Re: Stop Being Wrong About China Buying Our Bonds

#102

Post by DanielBMarkham »

cs702 wrote: post #76

Step-by-step, in plan English: (1) China sells stuff to US buyers, who pay with US dollars. (2) A US dollar is essentially a made-up financial instrument "backed by the full faith and credit" of the US -- it has value only because US laws make it so -- that is, by government fiat. (3) China could easily sell all those dollars, but if it did that, the dollar would depreciate, making Chinese products more expensive for…

The only thing I'd add here is this: when faced with spending more money than it has in the treasury, the U.S. has come upon a simple solution. Make up more imaginary money! More money for the Chinese, more money to build houses, more money for jobs. It's all good.

If there is any consensus among economists, which I doubt, my guess is that they would say that this is a good thing, except when too much imaginary money is created. Then the Chinese and other bond holders start asking for more interest, and the entire thing spins out of control. [Insert long argument here about when, exactly, that might happen or if it has already happened and we're just the walking dead right now]

Try explaining this to your grandmother. She'll think you've been smoking crack.

Re: Stop Being Wrong About China Buying Our Bonds

#103

Post by vasilipupkin »

anoncowherd wrote: post #87
selmnoo wrote: post #77

Earlier quoted context omitted.

Or both. Austrian economics has been exposed for its various faults in the academia, a modern decent education will reliably inform one of that.

>> Austrian economics has been exposed for its various faults in the academia, a modern decent education will reliably inform one of that. .. And this is why I didn't bother with any arguments. I don't have all day to waste on arguing with misguided people. But here's an idea: an economy consists of people making trades and investments etc. Each trade is affected by each person's current circumstances, ends, means an…

You could model behavior of millions of people statistically - the same way we model anything with millions of data points.

Re: Stop Being Wrong About China Buying Our Bonds

#104

Post by Friterie »

bradleyjg wrote: post #94
kamjam wrote: post #90

Earlier quoted context omitted.

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. So what, we go back to the bartering system? It's difficult to trade my skills as a programmer for food directly. Not sure what the rest of your statement is saying...

I'll give you a hint: it involves a pretty undistinguished metal from any practical standpoint that for some reason right wing nutjobs are totally obsessed with.

Oh I'm sorry, you must inhabit that parallel universe where central bankers and their web of oligarchs are public-spirited socialists, and where in the words of Blankfein actually are "doing God's work".

Did it never strike you as odd that when the robber barrons were deposed by the class of disenfranchised oligarchs they were awarded the Federal Reserve as compensation.. Yes they were quite pleased.

Re: Stop Being Wrong About China Buying Our Bonds

#105

Post by RyanZAG »

Friterie wrote: post #101
kamjam wrote: post #90

Earlier quoted context omitted.

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. So what, we go back to the bartering system? It's difficult to trade my skills as a programmer for food directly. Not sure what the rest of your statement is saying...

Indirect exchange was not invented with paper pushing central bankers... Read some economic history, even a bad one and you'd know that already. Aside from French experiments with paper during their revolution, hyperinflation is very much a modern, paper induced phenomenon.

There are many, many problems involved in pinning your value system to a random, naturally occurring substance. See [1] for one argument.

Another obvious problem: if we pin our money supply on gold, what happens if we find an asteroid made up entirely of gold - enough to triple the quantity of gold on earth? The person who grabs that gold now owns the whole planet and the entire economy is ruined, even though no actual production has occurred.

As with democracy, paper money is the worst possible system except for every other system anybody has tried.

[1] http://www.theatlantic.com/business/archive/2012/08/why-the-...

Re: Stop Being Wrong About China Buying Our Bonds

#106

Post by 21echoes »

Friterie wrote: post #83
JVIDEL wrote: post #78

Earlier quoted context omitted.

The way I see it its actually quite simple: the intrinsic value of X, anything from a piece of code to a building, needs a standard expression, and that expression is fiat currency. Currency has a value as long as someone is willing to trade something for it; the papiermark was worthless because nobody was willing to trade with it, the moment that happens with the US dollar it will become worthless as well. The reaso…

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. Paper is very easy to debase, but if you want you can go to the "best" "schools" in the world and they can tell you why it's such a good idea... and maybe one day you can pick up a job at a central bank. And if you're really lucky your peers will prefix your name with a sobriquet of h…

rather than stating the risks/benefits of fiat vs metal-backed currencies as absolutes, how about you address them as they really are?

what would you rather have controlling your inflation/deflation rates? the rate of mining of a metal from the ground? or, in the case of the US dollar, a specialist committee controlled by a democratically elected government? (and don't come back to me with bullshit fed conspiracies, here).

i mean this question quite honestly: sometimes, your government is so fucked up that yes, indeed, the mining process, if less controllable, is at least more reliable. however, in the case of most modern, powerful countries, this is far from true.

Re: Stop Being Wrong About China Buying Our Bonds

#107

Post by aliston »

aliston wrote: post #82
rtkwe wrote: post #8

Earlier quoted context omitted.

I don't fully understand the authors reasoning either but one thing that is highly misunderstood about the bonds is that a) they're not callable, meaning that borrowers can't suddenly decide that they want to get their investment back and b) China while the largest foreign national holder of US bonds (iirc) holds >10% of the issued bonds. Almost all bonds are held here in the US in things like mutual funds and by ret…

30% of treasury bonds are owned by the Fed, and in some recent auctions, the Fed has purchased as much as 90% of the new issuance. We would have a major problem if China were to dump their bonds on the market because there aren't too many buyers when you're at such low interest rates.

Why the downvote? I was responding to the claim the impact of a Chinese bond dump is "misunderstood" because most bonds are held in the US by retail investors and mutual funds.

In fact, most treasuries are not held by retail investors or mutual funds in the US [1]. The largest buyer as of late has been the Fed [2], indicating that when the Fed is pursuing ZIRP, there aren't a whole lot of other buyers. If China were to dump its bond portfolio, either interest rates would spike, or the Fed would have to expand its balance sheet by another trillion dollars.

[1] http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-N... [2] http://www.bloomberg.com/news/2012-12-03/treasury-scarcity-t...

Re: Stop Being Wrong About China Buying Our Bonds

#108

Post by ad »

Yglesias' extreme language always gets me.

>> It doesn't give China any leverage over the American government

They get some leverage. China's bond buying lowers rates on everything from mortgages to student loans. I agree that fear mongers overstate this, though.

>> the Chinese ... could order enormous quantities of Chipotle burritos and then throw them out. But that would be so hideously wasteful as to become politically untenable.

Even if it were tenable, it would still be a bad idea-- China want to suppress their currency now, but they're smart enough to know they may need to lift it later. That's why they buy US Bonds, similar to how the Fed buys or sells bonds depending on what effect it's going for. We've been in an extended period of buying so people forget that there are extended periods of selling, too. This gives them another tool apart from the usual raising interest rates, etc.

Re: Stop Being Wrong About China Buying Our Bonds

#109

Post by yxhuvud »

kamjam wrote: post #90
Friterie wrote: post #83

Earlier quoted context omitted.

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. Paper is very easy to debase, but if you want you can go to the "best" "schools" in the world and they can tell you why it's such a good idea... and maybe one day you can pick up a job at a central bank. And if you're really lucky your peers will prefix your name with a sobriquet of h…

It's strange you say it works because it happens that every case of hyperinflation in history has occurred under a fiat, paper system. So what, we go back to the bartering system? It's difficult to trade my skills as a programmer for food directly. Not sure what the rest of your statement is saying...

Back to bartering? There have never been a big scale bartering system as they always end up being debt based since that is a lot more convenient for all parts.

6000 Years of Debt is a book that can be recommended for information about that. It is not a very good description of the present, but it captures the past very nicely.

Re: Stop Being Wrong About China Buying Our Bonds

#110

Post by yxhuvud »

ad wrote: post #108

Yglesias' extreme language always gets me. >> It doesn't give China any leverage over the American government They get some leverage. China's bond buying lowers rates on everything from mortgages to student loans. I agree that fear mongers overstate this, though. >> the Chinese ... could order enormous quantities of Chipotle burritos and then throw them out. But that would be so hideously wasteful as to become politi…

>> It doesn't give China any leverage over the American government

Own a million to the bank, and it will dictate your life.

Own a billion to the bank, and you will dictate their life.

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