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Subject: China tells US to get their finances in order rss

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Jeff Brown
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China is getting more and more concerned about their huge investment in US Treasury bonds, and is telling the US that they need to get their house in order

http://www.npr.org/templates/story/story.php?storyId=1113625...

I can only imagine what would happen to the US government and the world economy in general if China decided it couldn't buy anymore of the US debt because of worries that we aren't good for it.
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Jeff Brown
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I bring this up because in earlier threads including this one

http://www.boardgamegeek.com/thread/402415

I brought up the question as to what would happen if we reach our credit limit. The US can't just keeping opening new credit cards to pay for other credit card debt so to speak. It seems as if our creditors are starting to worry about our inability to control ourselves.
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David desJardins
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I agree this is a big problem. It's a bit of a role reversal, as you have the conservative economists, who would normally be expected to be concerned about debt, generally arguing that anything that consenting parties do amongst themselves must be good in the long run.
 
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Jeff Brown
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I can imagine it must be hard for Geithner to sound like he has credibility telling the Chinese that we are going to get things together when all our actions show anything but.

Edit:
I guess this is why Geithner and Greenspan just told the American people that we can't keep doing this

Quote:
Both Geithner and Greenspan, appearing on the same show, insisted that the economy would not collapse. They said, however, that emergency steps, including the bailout plan last year and the economic stimulus bill this year, are expanding the federal budget deficit to unsustainable levels.


http://www.cnn.com/2009/POLITICS/08/02/geithner.economy/
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Jeff Brown
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DaviddesJ wrote:
I agree this is a big problem. It's a bit of a role reversal, as you have the conservative economists, who would normally be expected to be concerned about debt, generally arguing that anything that consenting parties do amongst themselves must be good in the long run.


I'm glad you agree that this is a problem but I find it interesting that you also are pointing fingers at Conservatives. I of course would be happy to point fingers at conservatives as I think they are a major part of the problems at the same time I am pointing fingers at the liberals who I also believe are a major part of the problem. Given that this is the largest deficit ever.

I voted for Obama but I am getting more and more nervous all of the time especially with other huge spending initiatives on the table. I am in favor of change that we can afford.
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David desJardins
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jeff brown wrote:
I'm glad you agree that this is a problem but I find it interesting that you also are pointing fingers at Conservatives.


I'm not pointing fingers at anyone, and especially not politicians of any stripe. There's plenty of blame to go around. I'm just observing that conservative economists argue, both generally and in this particular case, that it doesn't really matter who's financing the debt because market forces will ensure that it's financed at the "right" market price. While progressives are, both in general and in this particular case, more skeptical of that idea.

You did notice that the article you linked to here, raising concerns about this idea and this situation, was written by the very liberal Robert Scheer?

The fundamental problem that leads to Chinese accumulation of US government debt is not the level of US government borrowing, it's the current account balance. China sells us stuff, we pay them in dollars, they have to invest the dollars somewhere. They would be holding about the same amount of our debt even if we borrowed less, as long as the balance of trade and their own internal economic policies are what they are.
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Jeff Brown
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Thank you for clarifying. I did notice where the article came from and I have no problem with liberals.
I am however still skeptical about how everything seems to turn into a partisan issue everywhere. Whenever I talk with a liberal about the problems than suddenly conservatives are to blame and vice versa. It's completely unproductive. I however think that this is a problem with the greed and feelings of entitlement of the American people. I know that I will never get elected to office by saying that however.
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Jeff Brown
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DaviddesJ wrote:

The fundamental problem that leads to Chinese accumulation of US government debt is not the level of US government borrowing, it's the current account balance. China sells us stuff, we pay them in dollars, they have to invest the dollars somewhere. They would be holding about the same amount of our debt even if we borrowed less, as long as the balance of trade and their own internal economic policies are what they are.

They wouldn't be holding so much debt if we didn't have so much debt to sell. They would have to find somewhere else to invest their dollars. You do however bring up a good point on why the trade imbalance is a problem as well.
 
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Scott Russell
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Sadly, people that take this warning seriously should run out and buy as much imported stuff as they can before the dollar collapses.
 
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David desJardins
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jeff brown wrote:
They wouldn't be holding so much debt if we didn't have so much debt to sell.


To first order, I don't think it makes much difference. The Chinese government holds something like 6% of US government debt. We could cut our debt in half and they could still easily own just as much.
 
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Jeff Brown
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DaviddesJ wrote:
jeff brown wrote:
They wouldn't be holding so much debt if we didn't have so much debt to sell.


To first order, I don't think it makes much difference. The Chinese government holds something like 6% of US government debt. We could cut our debt in half and they could still easily own just as much.

Apparently its about 10% of the US debt
http://www.washingtonpost.com/wp-dyn/content/article/2008/11...


I can understand your point but if you were also to take into account that they have a much higher percentage of bonds that we sell now to fund current deficits. I can't remember where I saw it now but it seems like that Treasury Bonds are sold currently at a much higher percentage to foreign countries including China. China is also now our largest creditor. I'm trying to find the source I'll get back to you if I can find it. In the documentary IOUSA its says that in 2007 44.5% of our debt is foreign owned.

Overall I'm less concerned about who our creditors are and more concerned that our creditors especially our biggest one is concerned that we might not be good for our loans.
 
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jeff brown wrote:
I voted for Obama but I am getting more and more nervous all of the time especially with other huge spending initiatives on the table. I am in favor of change that we can afford.


If I had voted for him I would be much more concerned about his social policies. After all, he had his hands tied in economic matters; he could spend more or less, but there was only one reasonable way out of the crisis. It was in social matters were he coud actually inject the so promised change, but it looks like he's just mantaining a continuist approach.
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Jeff Brown
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HeinzGuderian wrote:
jeff brown wrote:
I voted for Obama but I am getting more and more nervous all of the time especially with other huge spending initiatives on the table. I am in favor of change that we can afford.


If I had voted for him I would be much more concerned about his social policies. After all, he had his hands tied in economic matters; he could spend more or less, but there was only one reasonable way out of the crisis. It was in social matters were he coud actually inject the so promised change, but it looks like he's just mantaining a continuist approach.

Let me put it this way If I got married to someone because they had a lot of promise in a lot of areas but after we got married she was spending us into bankruptcy, than the spending would suddenly be pushed to the front in terms of important issues. Obama promised a lot of things but I'm worried about us headed straight for bankruptcy so to speak.
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David desJardins
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jeff brown wrote:


OK, it depends how you count. It's about 6% of all US Treasury debt, but some of that debt is held by the US government itself (e.g., Social Security Trust Fund). So it's about 10% of the Treasury debt not held by the US government.

Point is still that it could easily be 15% or 20%.

Quote:
I can understand your point but if you were also to take into account that they have a much higher percentage of bonds that we sell now to fund current deficits.


Bonds are rolling over all the time. The average maturity of US Treasury debt is only about 48 months. You can't separate "debt sold to finance current deficits" from "debt sold to roll over existing debt". It's all one big market.
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Jeff Brown
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DaviddesJ wrote:

Bonds are rolling over all the time. The average maturity of US Treasury debt is only about 48 months. You can't separate "debt sold to finance current deficits" from "debt sold to roll over existing debt". It's all one big market.

Okay that makes sense, thanks for the clarification
I think I misunderstood what I was reading about it.

Back to the original topic:

I'm still a little concerned that Geithner is telling the Chinese we are going to do better when more spending is on the horizon.
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J
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jeff brown wrote:

I'm glad you agree that this is a problem but I find it interesting that you also are pointing fingers at Conservatives. I of course would be happy to point fingers at conservatives as I think they are a major part of the problems at the same time I am pointing fingers at the liberals who I also believe are a major part of the problem. Given that this is the largest deficit ever.

You can point finger at both Republicans and Democrats, but not fiscal conservatives, because there weren't many in office throughout this entire debacle.
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Bojan Ramadanovic
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DCAnderson wrote:
jarredscott78 wrote:
jeff brown wrote:

I'm glad you agree that this is a problem but I find it interesting that you also are pointing fingers at Conservatives. I of course would be happy to point fingers at conservatives as I think they are a major part of the problems at the same time I am pointing fingers at the liberals who I also believe are a major part of the problem. Given that this is the largest deficit ever.

You can point finger at both Republicans and Democrats, but not fiscal conservatives, because there weren't many in office throughout this entire debacle.


Has there ever been one in office?


From what I know of recent political history of the USA, Clinton cabinet had a few - and some of them are broadly part of the Obama team (which gives *some* hope). David is right in a sense that Bush (II) cabinet and their apologists abandoned all criteria when it gets to racking up unsustainable debt, and that Bush the younger himself was almost certainly an economic illiterate.

Obama probably is not, but it may not help him (or you guys in general) much if he is swimming against a massive tide of politically uncontrollable deficits, particularly as he tries to juggle several other high priorities at the same time while also maintaining sufficiently high popularity ratings to be able to keep his team ahead in the never-ending race that is the USA political season.

I am betting (real money) on a sustained period of double digit inflation in the USA interrupted only for recessionary periods. It is possible that some sort of bond-swap arrangement will be made with China and possibly another few of "first tier" creditors but the great bulk of people and central banks who hold T-bills and the like will lose their shirts and will have absolutely no recourse.

USA dollar is not going to be a reserve currency by the time this process gets significantly under way, USA having cashed the massive "seigniorage" check it has been handed at the end of the 1st world war.
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Matthew Kloth
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DCAnderson wrote:
jarredscott78 wrote:
jeff brown wrote:

I'm glad you agree that this is a problem but I find it interesting that you also are pointing fingers at Conservatives. I of course would be happy to point fingers at conservatives as I think they are a major part of the problems at the same time I am pointing fingers at the liberals who I also believe are a major part of the problem. Given that this is the largest deficit ever.

You can point finger at both Republicans and Democrats, but not fiscal conservatives, because there weren't many in office throughout this entire debacle.


Has there ever been one in office?


Calvin Coolidge (1923-1929)

Though, that was when the Republicans dominated New England and the south voted Democratic.


We have a fiscal conservative in the House. Not the kind I respect, but one none the less.
 
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