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The privations of the Chinese people are related to trade imbalances because if the Chinese government allowed their huge trade surpluses to go towards buying g

The privations of the Chinese people are related to trade imbalances because if the Chinese government allowed their huge trade surpluses to go towards buying goods (heating, vegetable oil, etc) for the Chinese people (thereby reducing trade surpluses), then most Chinese people would have higher standards of living. Instead the Chinese government forces these trade surpluses to go towards buying US Government bonds (i.e., lending money to the US Government in exchange for low returns (negative returns if you factor in the exchange rate and inflation)). This doesn't raise standards of living for the Chinese people. In fact, it loses them money. Yes, when you owe a banker a million dollars, he's in trouble. But he's only in trouble when you declare bankruptcy. At which point, he may be in trouble, but you're in bigger trouble. And that may be the only way out of this financial mess... The US Government declaring bankruptcy. That would mean China is in $1.4 trillion worth of trouble, but the US would be in a lot, lot, lot more trouble.

mynameishere 19y ago
My point is simply that iPod factories and soybean fields are not fungible. China has an unnatural industrial base, that doesn't suit the purposes of its population--it reminds me somewhat of the forced industrialization of the USSR, which worked great at singlemindedly producing tanks and rocket launchers. But now they have a shakey, unbalanced oil economy, while Germany and Japan (nominal losers) are both much healthier.
anamax 19y ago
> The US Government declaring bankruptcy. That would mean China is in $1.4 trillion worth of trouble, but the US would be in a lot, lot, lot more trouble. The Chinese can't foreclose. The most significant result of the US govt declaring bankruptcy would be that folks would stop lending it money, at least for a while. (Folks have a surprisingly short memory for this sort of thing. Argentina has defaulted a couple of times.) That would be a good thing as long as it lasted.
- marvin 19y ago
  Argentina defaulting can hardly be compared to the US defaulting. I am no economist, but I doubt the US economy would ever be the same if it suddenly decided not to repay any of its foreign debt. Argentina's GDP today is about 1/60 that of the US, and it is hardly a huge player internationally. When they defaulted, 93 billion 2001 US dollars were lost by its creditors. The United States foreign debt (omitting Medicare+Social Security obligations and, unfairly, the more direct debt to its public) is 4000 billion 2007 US dollars. That's a monumental difference, and not paying it back would be a historic violation of trust bordering on an act of war. Argentina _did_ get in a lot of trouble for its decision to default, and it doesn't seem very likely that the world would forgive a similar, but 30 times larger, transgression from the US. It is not an option. If anything like that happened, it would be indirectly (such as being caused by a dollar crash)
  - jorgeortiz85 19y ago
    Except defaulting on the foreign debt would also mean defaulting on the entire national debt. That would pretty much screw up the entire US financial system. Of course, what's more likely is inflating away the debt (i.e., devaluing the value of the dollar, and thus all dollar-denominated assets). There may not be foreclosures, but there will be a clearance sale on US assets. 90% off! Everything must go!
  - anamax 19y ago
    "Bordering on an act of war" in hyperbole. Yes, it would be a huge financial loss for those holding bad paper (and the US could pick and choose what paper became useless - including discriminating by ownership) but what can they do other than yell and refuse to lend again? Yes, they could impose economic sanctions and kill their export market.

mynameishere 19y ago

My point is simply that iPod factories and soybean fields are not fungible. China has an unnatural industrial base, that doesn't suit the purposes of its population--it reminds me somewhat of the forced industrialization of the USSR, which worked great at singlemindedly producing tanks and rocket launchers. But now they have a shakey, unbalanced oil economy, while Germany and Japan (nominal losers) are both much healthier.

anamax 19y ago

> The US Government declaring bankruptcy. That would mean China is in $1.4 trillion worth of trouble, but the US would be in a lot, lot, lot more trouble. The Chinese can't foreclose. The most significant result of the US govt declaring bankruptcy would be that folks would stop lending it money, at least for a while. (Folks have a surprisingly short memory for this sort of thing. Argentina has defaulted a couple of times.) That would be a good thing as long as it lasted.

marvin 19y ago
Argentina defaulting can hardly be compared to the US defaulting. I am no economist, but I doubt the US economy would ever be the same if it suddenly decided not to repay any of its foreign debt. Argentina's GDP today is about 1/60 that of the US, and it is hardly a huge player internationally. When they defaulted, 93 billion 2001 US dollars were lost by its creditors. The United States foreign debt (omitting Medicare+Social Security obligations and, unfairly, the more direct debt to its public) is 4000 billion 2007 US dollars. That's a monumental difference, and not paying it back would be a historic violation of trust bordering on an act of war. Argentina _did_ get in a lot of trouble for its decision to default, and it doesn't seem very likely that the world would forgive a similar, but 30 times larger, transgression from the US. It is not an option. If anything like that happened, it would be indirectly (such as being caused by a dollar crash)
- jorgeortiz85 19y ago
  Except defaulting on the foreign debt would also mean defaulting on the entire national debt. That would pretty much screw up the entire US financial system. Of course, what's more likely is inflating away the debt (i.e., devaluing the value of the dollar, and thus all dollar-denominated assets). There may not be foreclosures, but there will be a clearance sale on US assets. 90% off! Everything must go!
- anamax 19y ago
  "Bordering on an act of war" in hyperbole. Yes, it would be a huge financial loss for those holding bad paper (and the US could pick and choose what paper became useless - including discriminating by ownership) but what can they do other than yell and refuse to lend again? Yes, they could impose economic sanctions and kill their export market.