Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Stop Being Wrong About China Buying Our Bonds

slate.com

Post reply on HN
Print view View original

71–80 of 137 posts

Re: Stop Being Wrong About China Buying Our Bonds

#71

Post by jusben1369 »

westicle wrote: post #2

>> 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 author is stating they don't do it because they believe the US is a good place (or not) to place their money (the usual criteria you would use when deciding amongst competing choices of where to put your money) They do it as a mechanism to achieve another goal: an artificially low value of their own currency. This is so their goods look cheap(er) to other countries. That in turn keeps employment high and social unrest low. That means less resistance to one party rule.

Re: Stop Being Wrong About China Buying Our Bonds

#72

Post by jusben1369 »

anoncowherd wrote: post #28
westicle wrote: post #2

>> 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…

Keynes is consistently proven to be far more accurate and effective than the Austrian school of thought. Keynes mets so much resistance because it's counter intuitive. Very literal thinkers have trouble with that and are attracted to the Austrian way of thinking.

Re: Stop Being Wrong About China Buying Our Bonds

#74

Post by scott_s »

_delirium wrote: post #67
scott_s wrote: post #48

Earlier quoted context omitted.

US dollars are the world's currency hub. Let's pretend that there was only one airline hub in the country, and we're going to say that it's Atlanta, because I always seem to use that as my connection. (Atlanta is a hub, but it's not the hub.) Let's also assume that you have to use the hub, no matter where you fly. It's easy to see in this scenario that Atlanta will now enjoy a special status as an airport; everyone h…

Just to add an additional factor, related to stability but not identical: the size and liquidity of the bond market also matters. An advantage to U.S. Treasuries is that the total volume outstanding is extremely large, and they are frequently traded. Therefore even very large trades can be executed quite easily, without completely swamping the market. If you want to buy or sell $50 billion of U.S. Treasuries, that is…

Yes, thank you, very good points to add.

Re: Stop Being Wrong About China Buying Our Bonds

#75

Post by mseebach »

jbooth wrote: post #16
RyanZAG wrote: post #11

Earlier 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…

A favor? There's no such thing as a favor. The US offers bonds in $ at a certain very low interest rate and China buys them in order to maintain their low yuan valuation. As stated in the article, this is to manipulate currency prices for domestic reasons to keep their exported goods "cheap" in terms of the global reserve currency, dollars. Your cons are all messed up. They're making the dollar stronger and the yuan…

It's not a favour, but then again, most favours aren't. "I owe you one" implies an expected mutually beneficial exchange.

It's a reliance on a (single) counter-party continuing to find the deal attractive. If, for whatever reason, they stop, the cost of debt will explode and bad things will happen. As you mention, it's a policy. Policies are subject to change. The Chinese economy is maturing into consuming more of its own output, and Chinese people are growing wealthier and more interested in buying foreign goods - both are long term trends that makes that policy less attractive.

The reason it's hard to sell that the existence of cheap debt as a signal to borrow and spend, is that the US isn't paying down its loans, it's rolling them over into new debt and assuming that the new debt is not significantly more expensive than the current.

That assumption need to hold several decades in the future. If it fails, things get real ugly.

EDIT: By "bad things" and "real ugly" I mean significant, sudden inflation which voters are unlikely to reward.

Re: Stop Being Wrong About China Buying Our Bonds

#76

Post by cs702 »

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 US buyers! Chinese manufacturers would not like that. So what does China do with all those US dollars? (4) China buys US treasury bonds -- another made-up financial instrument, issued by the same government, that pays interest in the form of more dollars. Effectively, China exchanges one made-up instrument that pays no interest for another one that does. It's not an "investment" in the traditional sense of the word.

--

PS. If you find all of this mind-boggling, you're in good company. When asked about the value of money two centuries ago, Nathan Mayer Rothschild -- a member of the famous banking dynasty -- reportedly said that only two people in the world really understood it, but they disagreed with each other. And things were a lot simpler back then!

Re: Stop Being Wrong About China Buying Our Bonds

#77

Post by selmnoo »

DanBC wrote: post #58
anoncowherd wrote: post #50

Earlier quoted context omitted.

Downvote me all you want, but I'm right. Yes, I do realize that's not an argument.

You may have been down voted for tone, not correctness.

Or both.

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

Re: Stop Being Wrong About China Buying Our Bonds

#78

Post by JVIDEL »

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 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 reason we use these standards is simple: convenience. We can discuss forever how many lines of code you would have to write to pay for your rent, and what if your landlord doesn't needs any code? then you have to find someone who needs code and is willing to trade it for something your landlord needs and its also equivalent to your rent. Fiat currency in this case is like the metric system: it works (nearly) everywhere.

Re: Stop Being Wrong About China Buying Our Bonds

#79

Post by winfred »

CrunchyJams wrote: post #65

Wow, where to begin... 1). Interest and principle on USTs are paid in USD, so the notion that the Chinese government simply "wants to send those dollars back to the US" is bunk since they're ultimately getting more back 2). If the Chinese government wanted to directly influence USD value, they could also simply hold onto the USD as currency reserves to take it out of the market / reduce supply By buying US debt, Chin…

>And, while not likely to be used in the near term, this is absolutely an investment in defense.

How? By dumping them below market rate? US/JPN will just print money and buy them.

If ever there is a war between these nations, these bonds become worthless overnight. Make no mistake, these T bonds are liabilities for China, not the other way around.

Re: Stop Being Wrong About China Buying Our Bonds

#80

Post by brohee »

anoncowherd wrote: post #28
westicle wrote: post #2

>> 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…

Someone let Dread Pirate Robert out?
Post reply on HN