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Stop Being Wrong About China Buying Our Bonds
21–30 of 137 posts
Re: Stop Being Wrong About China Buying Our Bonds
#22If the Chinese dumped their bonds interest rates would spike and this would be a crisis for the USA. This guy doesn't seem to get that.
Bonds aren't callable.
Re: Stop Being Wrong About China Buying Our Bonds
#23Re: Stop Being Wrong About China Buying Our Bonds
#24>> Since it's not an investment, it's not an investment the Chinese can lose faith in. And it's certainly not a favor to the United States of America. I have no formal background in economics, but I'd really appreciate it if someone who does could explain this statement in some context. I would have thought as a general rule: a debtor at risk (even theoretical risk) of default constitutes a concern to its creditor. I…
The most important metric is excessive inflation, and the secondary one is exchange rates (though changes in that have mixed effects). These are empirical facts of the matter.
There's lots of theories about how this or that or the other thing might cause high inflation and/or devaluation. But when you look at the track record of these theories they are pretty horrible. QE1 and QE2 was supposed to lead to imminent hyperinflation. It didn't happen. The S&P downgrade was supposed to lead to yield spikes in treasuries (which in turn was supposed to lead to heavy inflation). It didn't happen. Deficit spending was supposed to lead to bond vigilantes coming out of the woodwork and cause catastrophic inflation. It didn't happen.
As a formal matter the government doesn't even need to issue bonds. Under this view (which broadly speaking goes by the name MMT) the government doesn't have a budget per se at all. When a bill comes due they can just create dollars out of thin air to pay it. When taxes or other fees are paid to the government they don't get stored anywhere to be used to pay bills, but instead cease to exist. Advocates of MMT suggest that the government tweak outflows and inflows not with the aim of balancing a non-existing budget but rather based on managing observed metrics (mainly inflation).
Critics claim that a move to such a system would cause hyperinflation. Who knows, they might even be right for once. The important take away is that the US government is not just a really big household, and US treasury bonds are not just like a credit card.
Re: Stop Being Wrong About China Buying Our Bonds
#25If the Chinese dumped their bonds interest rates would spike and this would be a crisis for the USA. This guy doesn't seem to get that.
it would also be a crisis for China (and thereafter the rest of the world)
The issue is that the global diet for treasuries artificially holds down interest rates. If purchases slowed or holdings were sold, interest rates would rise. Whether it would be a crisis or merely hurt is a marginal distinction.
The government of the USA would go bankrupt in months if interest rates rose to 5%, which is an historically normal figure.
Re: Stop Being Wrong About China Buying Our Bonds
#26I think it's strange to talk about this without mentioning the concept of reserve currency: http://en.wikipedia.org/wiki/Reserve_currency It's not just China that has a lot of investment in US dollars - and no matter what the policy reason is, it is an investment because their wealth is tied up in the status of the US economy. Now, our reserve currency status is something that China, along with the rest of the world,…
I've not been following the connection between currency valuation and threat of default. I'm not sure if it's just my not seeing some connection (certainly possible) or others conflating things that aren't actually connected. Why should I expect less demand for my dollar a week after a US default?
Re: Stop Being Wrong About China Buying Our Bonds
#27The biggest comfort about China buying all our debt is they are less likely to invade or nuke us because it would destroy them economically.
Two problems with this: the first Yglesias covers in the OP; the second, that China could nuke us, even if they wanted to.
What would stop China from nuking us if they wanted to?
Re: Stop Being Wrong About China Buying Our Bonds
#28>> Since it's not an investment, it's not an investment the Chinese can lose faith in. And it's certainly not a favor to the United States of America. I have no formal background in economics, but I'd really appreciate it if someone who does could explain this statement in some context. I would have thought as a general rule: a debtor at risk (even theoretical risk) of default constitutes a concern to its creditor. I…
>> I have no formal background in economics, but I'd really appreciate it if someone who does could explain this statement in some context.
Ignore the mainstream "Talking Heads" -economists in the media - they serve two main purposes: 1) Help Wall Street fleece unsuspecting "retail investors", and 2) Maintain the illusion that everything is alright.
Austrian Economics is right, and everything else is either wrong or meant to mislead you.
You see, you shouldn't be thinking naughty thoughts like: "Since I personally can't keep living beyond my means for ever and ever, why could any government? Don't the 'laws' of economics apply to governments?" (Hint: they do.)
Go forth and educate thyself: http://mises.org
( Oh, and ignore all the clueless pontificators on HN too )
Re: Stop Being Wrong About China Buying Our Bonds
#29Earlier quoted context omitted.
Some people believe that China buying US government bonds is a favour to USA as it allows the US government to spend all of this money coming in on various government projects, such as military spending and social security. If China stopped supplying that money, the US government would have to print it themselves (for free), which would lower the value of US currency. Some people believe this is a good thing, and oth…
Please do not lump Social Security as part of the problem. That program is solvent. Your main point is correct, but maybe medicare is a better example since it is not a self sustaining program.
This article[1] comes to a different conclusion:
“Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers.”
Is the article in error?
[1] http://www.forbes.com/sites/mikepatton/2013/06/12/is-the-soc...
Re: Stop Being Wrong About China Buying Our Bonds
#30If the Chinese dumped their bonds interest rates would spike and this would be a crisis for the USA. This guy doesn't seem to get that.
That would be worse for China because the value of CNY would skyrocket stopping their exports. Value of USD would plummet helping US exports.
Besides, China and foreigners are not anywhere near the biggest buyers of US debt. Fed is. Chinese and Japanese had actually five month net selling period earlier this year.