Stop Being Wrong About China Buying Our Bonds • Hacker News Board

Re: Stop Being Wrong About China Buying Our Bonds

#91

Post by tedunangst » Fri, Oct 18, 2013, 4:21 PM UTC

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…

When asked about calculus three centuries ago, Isaac Newton reportedly said that only two people in the world really understood it, but they disagreed with each other.

Re: Stop Being Wrong About China Buying Our Bonds

#92

Post by Lost_BiomedE » Fri, Oct 18, 2013, 4:23 PM UTC

winfred wrote: post #79

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.

If the Chinese gov did that after loading up on gold, and backed the chinese currency with a fraction of gold, they would have a much better chance of convincing others to drop the US dollar as a reserve currency.

How do you go broke? Slowly, then all at once.

Re: Stop Being Wrong About China Buying Our Bonds

#93

Post by bradleyjg » Fri, Oct 18, 2013, 4:23 PM UTC

aliston wrote: post #81

bradleyjg wrote: post #24

Earlier quoted context omitted.

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.

Post hoc rationalizations are inherently non-falsifiable.

Re: Stop Being Wrong About China Buying Our Bonds

#94

Post by bradleyjg » Fri, Oct 18, 2013, 4:26 PM UTC

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...

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.

Re: Stop Being Wrong About China Buying Our Bonds

#95

Post by pessimizer » Fri, Oct 18, 2013, 4:27 PM UTC

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…

>[A US dollar] has value only because US laws make it so

Or more specifically, because US taxes must be paid in dollars, and dollars must be used to buy US financial instruments.

Re: Stop Being Wrong About China Buying Our Bonds

#96

Post by thejteam » Fri, Oct 18, 2013, 4:27 PM UTC

mkr-hn wrote: post #35

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…

I might be misunderstanding the nature of the bond market, but the treasury's website says 30 years are at > 3%. http://www.treasury.gov/resource-center/data-chart-center/in...

That chart is for yields, which is distinct from rates. Although the rates for 30 year bonds are also greater than 3 percent (3.625 in the latest auction). However, if you are looking at inflation protected securities (TIPS) a 30 year TIPS bond has an interest rate of 0.625.

http://www.treasurydirect.gov/RI/OFNtebnd

Re: Stop Being Wrong About China Buying Our Bonds

#97

Post by pessimizer » Fri, Oct 18, 2013, 4:28 PM UTC

tedunangst wrote: post #91

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…

When asked about calculus three centuries ago, Isaac Newton reportedly said that only two people in the world really understood it, but they disagreed with each other.

But mostly about who came up with it:)

Re: Stop Being Wrong About China Buying Our Bonds

#98

Post by pessimizer » Fri, Oct 18, 2013, 4:39 PM UTC

jes wrote: post #29

bkmartin wrote: post #18

Earlier quoted context omitted.

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...

>Is the article in error?

No, just euphemistic propaganda. The "disruptive consequences" are that within 20-30 years Social Security may have to be cut to what will be a higher benefit (if productivity gains are considered) than people are currently receiving now. The "legislative changes" are to cut benefits now.

Lumping Medicare in, which has a serious problem because of the horrible US healthcare system, allows Forbes to pretend as if there's anything wrong w/SS.

Re: Stop Being Wrong About China Buying Our Bonds

#99

Post by klenwell » Fri, Oct 18, 2013, 4:42 PM UTC

skue wrote: post #61

drcode wrote: post #33

Here's my simplified way of thinking about it: The Chinese government wants its citizens to be relatively poor. Why? because then it can use them as cheap labor that is a valuable tool to leverage on the world stage. Plus, poverty stifles political activism. How does it keep its people poor? Well, by making sure a USD spent in China can buy 4x as much rice/milk/chicken/etc in China as it can in the US. This will mean…

> Plus, poverty stifles political activism. Do you have evidence to back that up? I can think of a number of examples to the contrary offhand: The French Revolution was preceded by a financial crisis and poverty, as was the rise of the Nazism in Germany. There's Mohamed Bouazizi, the poor and repressed fruit vendor who helped launch the Arab Spring in Tunisia. And even the Occupy and Tea Party movements that have eac…

One of the interesting points I heard made in discussion of the Arab Spring is that it's not the poor but more privileged classes that generally spark revolutions. Here's the Wall Street Journal on the subject (I think I originally heard the idea on NPR):

While the poor struggle to survive from day to day, disappointed middle-class people are much more likely to engage in political activism to get their way.

This dynamic was evident in the Arab Spring, where regime-changing uprisings were led by tens of thousands of relatively well-educated young people. Both Tunisia and Egypt had produced large numbers of college graduates over the past generation. But the authoritarian governments of Zine El Abidine Ben Ali and Hosni Mubarak were classic crony-capitalist regimes, in which economic opportunities depended heavily on political connections. Neither country, in any event, had grown fast enough economically to provide jobs for ever-larger cohorts of young people. The result was political revolution.

None of this is a new phenomenon. The French, Bolshevik and Chinese Revolutions were all led by discontented middle-class individuals, even if their ultimate course was later affected by peasants, workers and the poor.

http://online.wsj.com/news/articles/SB1000142412788732387390...

I think both Occupy and Tea Party movements fit this model. College kids mired in debt who can't find decent jobs. Aging white middle class conservatives watching the financial class run away with the lion's share of economic growth (while being led to believe that's it's being siphoned off by immigrants, welfare queens, and gay married couples).

Also brings to mind the old "Revolution to Conserve" idea I was introduced to back in AP American History:

http://en.wikipedia.org/wiki/Clinton_Rossiter

Re: Stop Being Wrong About China Buying Our Bonds

#100

Post by cinquemb » Fri, Oct 18, 2013, 4:44 PM UTC

velodrome wrote: post #4

War is made less likely as a function of economic interdependence. http://web.mit.edu/~sabrevln/Public/GameTheory/Journal%20of%...

I think that is really interesting because from what it seems based on events around the world, the economic interdependence between nation states has grown at the same time people within nation states economic realities are becoming more decoupled from that growth. From that decoupling, conflict emerges from which hasn't been seen before in the way that it is evolving now.