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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

#81

Post by aliston »

bradleyjg wrote: post #24
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 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 hyp…

The reason we haven't seen inflation is that, despite all the printing, the money supply has not increased since 2008. This is because the velocity of money and the money multiplier have both decreased significantly since the financial crisis -- in essence, people are not borrowing or spending the way that they were in 2008. If people aren't spending, you aren't going to get inflation... until you do.

Re: Stop Being Wrong About China Buying Our Bonds

#82

Post by aliston »

rtkwe wrote: post #8
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 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.

Re: Stop Being Wrong About China Buying Our Bonds

#83

Post by Friterie »

JVIDEL wrote: post #78
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 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 high honour as cool as "helicopter".

Re: Stop Being Wrong About China Buying Our Bonds

#84

Post by anonymous »

It's a global economy. I take it you all agree on that.

I have a question for you: "With respect to importing and exporting, how important is it to be in balance, or to have trade surplus (versus a trade deficit)?"

China's strategy is aimed at ensuring it maintains a trade surplus. They have succeeded for centuries. China will export more than it imports.

And the US? Its strategy is to look for the cheapest labor and goods to "exploit", whereever those may be found.

What do you think? Which is the better strategy? Does trade balance matter?

As for this article, I have no idea what this guy is on about.

The US is primarily a buyer. China is primarily a seller.

If you accept that as true, then the US's "credit" is important. And who do you think decides whether a buyer's credit is good?

Would you keep shipping goods to a buyer who could not pay?

Re: Stop Being Wrong About China Buying Our Bonds

#85

Post by anoncowherd »

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.

Sure, far be it from anyone not to conform to everyone else's expectations! Dreadful! :p

Re: Stop Being Wrong About China Buying Our Bonds

#86

Post by aliston »

hannibal5 wrote: post #30
a8da6b0c91d wrote: post #14

If 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.

It would be a crisis so long as China remains an export-driven manufacturing-based economy. But, as China becomes wealthier, knowledge-based economy, it won't be as big a deal. With 1/6th of the world's population, I would think there would be plenty of domestic buyers.

Re: Stop Being Wrong About China Buying Our Bonds

#87

Post by anoncowherd »

selmnoo wrote: post #77
DanBC wrote: post #58

Earlier quoted context omitted.

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.

>> 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 and preferences, or even the mood he's in.

Did his wife die yesterday? Will that affect his behaviour in the market?

Now, the question is: How could you possibly model the behaviour of hundreds of millions of people in their daily lives with any kind of mathematical formulas when everything they do is subjective, and subject to their whims and moods?

Think about that.. and then think about whether Austrian economics has been "exposed" for anything.

Re: Stop Being Wrong About China Buying Our Bonds

#88

Post by anoncowherd »

jusben1369 wrote: post #72
anoncowherd wrote: post #28

Earlier quoted context omitted.

>> 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.

https://news.ycombinator.com/item?id=6572124

Re: Stop Being Wrong About China Buying Our Bonds

#89

Post by jbooth »

mseebach wrote: post #75
jbooth wrote: post #16

Earlier quoted context omitted.

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 it…

That's fair, and the commenters below pointed out that I was sort of conflating the short and long term yields on bonds, which dampens the enthusiasm for borrowing.

The thing is, right now, all of our borrowing is for things that don't pay much of an economic dividend, and meanwhile our infrastructure is going to absolute hell. If there was ever a time to borrow and spend some money on infrastructure, this is it. We can believe that while also believing the systemic budget problems need to be fixed.

Re: Stop Being Wrong About China Buying Our Bonds

#90

Post by kamjam »

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…

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...

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