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To me it's also chilling that the US owes a country like this 1 Trillion dollars in debt. Also related, I think Google is f@$# awesome for standing up and doin

To me it's also chilling that the US owes a country like this 1 Trillion dollars in debt. Also related, I think Google is f@$# awesome for standing up and doing what's right.

raquo 17y ago
Sorry, but why is that chilling? The other way round seems like more potential trouble. upd: thanks, dsplittgerber
- dsplittgerber 17y ago
  Their government wealth fund holds one of the largest USD reserves in the world, if not the largest. Theoretically, they could threaten to quickly unload it and send the USD tumbling if they don't get their way with some policy. Realistically, that won't happen, as the yuan is still pegged to the USD and the US is one of the largest importers of chinese stuff. It's not that far-fetched to think of some other worrying scenarios, though.
  - rortian 17y ago
    Yes, it is in fact far fetched. They are powerless to do anything about their dollar reserves without losing substantial amounts of wealth.
  - dpatru 17y ago
    As Peter Schiff has noted, if US dollar tumbles, holders of the dollar will be hurt, but the US itself will be wiped out. The situation is analogous to a stock market bubble. Holders of stocks with inflated values are hurt when the stocks lose their value, but the over-valued companies themselves go bankrupt. Furthermore, China would be better off if it consumed more of what it produces rather than sell it to Americans for American dollars and government bonds.
    - geoffc 17y ago
      When stocks tumble the companies usually keep operating along, the shareholders take the big haircut.
      - ericd 17y ago
        Except when the company is cashflow negative and needs to continue issuing debt to operate. Once confidence in them is shot, and they can't find money to borrow, they file for bankruptcy. See the parallel?
    - rortian 17y ago
      I wish you had just replaced Peter Schiff with, "Ron Paul's economic advisor" to save me some time. What you assert is simply untrue. It would be a good thing, currently, for the dollar to be devalued somewhat. Our exports would be cheaper to others and thus more attractive. Please cite credible people when you attempt to make extraordinary claims like 'the US itself will be wiped out'.
      - dpatru 17y ago
        Look up "peter schiff was right" and "peter schiff mortgage bankers speech" on youtube. At the time when "credible" people were predicting no recession and prosperity in perpetuity, Schiff was a contrarian voice predicting recession and a fall in housing prices. For example: see http://video.google.com/videoplay?docid=7879752717244782545# http://video.google.com/videoplay?docid=7879752717244782545# which shows side-by-side prognoses from Schiff and bullish pundits on CNBC and Fox News before the recession. You can't get to prosperity by devaluing your currency because prosperity depends on savings and investment and a falling currency encourages the opposite.
        rortian 17y ago
        Alright, here's a problem for you, no one will assert that bullish pundits on CNBC are credible. http://www.cepr.net/index.php/dean-baker/ http://www.cepr.net/index.php/dean-baker/ Dean Baker is an actual economist and he called the housing bubble. I find your last sentence bizarre as it asserts as a truism something that is not really true at all. You believe people who are on the on the fringe of economics and seem to enjoy it so more power to you.
  - Groxx 17y ago
    Pulling it out would be M.A.D., it effectively won't happen. And given that the rest of the world would pretty much tumble with it, there'd be a mad scramble to protect the USA from bankrupting, and a mad attack on China for doing so. As evidence, just look how USA's economic downturns are reflected by others shortly after. They are likely to try to use the debt to pressure the USA though, which is still a fairly real threat. If they're not already, that is, I wouldn't be surprised (and it wouldn't be illogical for them to do so, it is in their best interest to have as much control as they can get).
    - dsplittgerber 17y ago
      Worrying about this was one of the primary reasons for creating the U.S.-China Strategic and Economic Dialogue, so these topics are being adressed at the highest levels of both governments.
    - _delirium 17y ago
      Yeah, I think China would avoid doing anything that looked like an outright hostile act, like dumping all its reserves simultaneously. If they did so, and the U.S. considers it a hostile act rather than merely commercial maneuvering, there are a pretty wide range of options to retaliate, which makes it something of a M.A.D. scenario. Among other things, the U.S. could void the $1t of outstanding Treasury bonds held by China, seize the assets of Chinese companies in the US, and/or ban imports from China. I think both countries would fare pretty poorly from an all-out economic/trade war, even if it didn't spill over into actual hostilities (there are edge scenarios where you can imagine e.g. an angry U.S. recognizing Taiwan's independence in retaliation).
  - lallysingh 17y ago
    It's not #1. That's Japan. edit: the source: http://www.cnn.com/2010/BUSINESS/02/16/china.us.treasuries/index.html http://www.cnn.com/2010/BUSINESS/02/16/china.us.treasuries/i...
    - dsplittgerber 17y ago
      Not true, it's China. "China’s foreign-exchange reserves now total $2.4 trillion, of which about 70% are thought to be in dollars." http://www.economist.com/business-finance/economics-focus/displaystory.cfm?story_id=15770808 http://www.economist.com/business-finance/economics-focus/di... http://en.wikipedia.org/wiki/List_of_countries_by_foreign_exchange_reserves http://en.wikipedia.org/wiki/List_of_countries_by_foreign_ex... Edit: Downvoting, seriously? If China has 2.4 trillion foreign currency reserves, 50-70% of which are USD, and Japan has 1.0 trillion foreign currency reserves totally, how can Japan ever be ahead of China? 2nd Edit: http://www.treas.gov/tic/mfh.txt http://www.treas.gov/tic/mfh.txt Seems like CNN/FT.com had it wrong?
      - borism 17y ago
        forex reserves != US public debt although China is #1 holder of both, US public debt held by China is 24.3% of total foreign ownership (Japan #2 @ 20%)
        dsplittgerber 17y ago
        You are right of course, which is why I talked about USD reserves, not debt. Speaking about debt, China also holds ~400 billion of Fannie/Freddie bonds, which is not included in the official figure, neither for debt calculation, nor for foreign ownership, I guess.
Locke1689 17y ago
When you owe someone $1 million, you have a problem. When you owe someone $1 trillion, they have a problem.
- bendtheblock 17y ago
  Not sure I follow the reasoning here. Can you explain?
  - hyperbovine 17y ago
    What is enforcing the repayment of said debt, I think is what he is getting at. Not that I agree.
    - Locke1689 17y ago
      Partially. I was also trying to deliver the gravity of the holdings involved in this case. $1 trillion is economy-shaping money -- no country can simply "drop" $1 trillion dollars. China's economic future is now inexorably tangled with the United States'.
  - Locke1689 17y ago
    Sure, I don't have a bunch of time but I can try and reiterate some of the economists' positions that I have read (I am not a professional economist). It seems that one of the primary reasons for China's purchase of such a large share of US Treasury bonds (a little over 10%) has been to artificially lower the price of the Renminbi as compared to other currencies. This has become almost the cornerstone of the Chinese manufacturing economy -- because the Renminbi is artificially deflated compared to Western currencies, manufacturing is very cheap in China and their export status increases greatly. One of the problems with selling those bonds is that the reverse would happen: the Renminbi would shoot up, devaluing Chinese exports greatly. In contrast, the United States would experience massive devaluation of the dollar. This would produce negatives and positives, the positives being a large increase in the value of US exports. In addition, dumping U.S. assets would cause the value of their own dollar holdings to decrease, causing further problems. Simply enough, the amount of U.S. Treasury bonds/securities that China holds at the moment is enough to bankrupt its own economy if they decide against it. In other words, China holds a good bargaining position right now, but cannot fully backup the threat without destroying their own reserves and manufacturing base. I don't have time to find the links right now but some very interesting economists on this issue are the Brookings Institute, Paul Samuelson (MIT), and Paul Krugman (Princeton).
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cynicalkane 17y ago
So what? It's not like China can call the debt. The worst they can do is dump it on the market, whereupon banks and money managers across the globe will devour it like money-flavored hotcakes. There will be a brief market burp, and some change in USD value and interest rates, but at great fiscal expense to China. Disclaimer: IANAT (am not a trader).
- deleted 17y ago
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albertsun 17y ago
Sovereign lending relations don't work quite the same way as they do for you or I.

To me it's also chilling that the US owes a country like this 1 Trillion dollars in debt. Also related, I think Google is f@$# awesome for standing up and doing what's right.

raquo 17y ago

Sorry, but why is that chilling? The other way round seems like more potential trouble. upd: thanks, dsplittgerber

dsplittgerber 17y ago
Their government wealth fund holds one of the largest USD reserves in the world, if not the largest. Theoretically, they could threaten to quickly unload it and send the USD tumbling if they don't get their way with some policy. Realistically, that won't happen, as the yuan is still pegged to the USD and the US is one of the largest importers of chinese stuff. It's not that far-fetched to think of some other worrying scenarios, though.
- rortian 17y ago
  Yes, it is in fact far fetched. They are powerless to do anything about their dollar reserves without losing substantial amounts of wealth.
- dpatru 17y ago
  As Peter Schiff has noted, if US dollar tumbles, holders of the dollar will be hurt, but the US itself will be wiped out. The situation is analogous to a stock market bubble. Holders of stocks with inflated values are hurt when the stocks lose their value, but the over-valued companies themselves go bankrupt. Furthermore, China would be better off if it consumed more of what it produces rather than sell it to Americans for American dollars and government bonds.
  - geoffc 17y ago
    When stocks tumble the companies usually keep operating along, the shareholders take the big haircut.
    - ericd 17y ago
      Except when the company is cashflow negative and needs to continue issuing debt to operate. Once confidence in them is shot, and they can't find money to borrow, they file for bankruptcy. See the parallel?
  - rortian 17y ago
    I wish you had just replaced Peter Schiff with, "Ron Paul's economic advisor" to save me some time. What you assert is simply untrue. It would be a good thing, currently, for the dollar to be devalued somewhat. Our exports would be cheaper to others and thus more attractive. Please cite credible people when you attempt to make extraordinary claims like 'the US itself will be wiped out'.
    - dpatru 17y ago
      Look up "peter schiff was right" and "peter schiff mortgage bankers speech" on youtube. At the time when "credible" people were predicting no recession and prosperity in perpetuity, Schiff was a contrarian voice predicting recession and a fall in housing prices. For example: see http://video.google.com/videoplay?docid=7879752717244782545# http://video.google.com/videoplay?docid=7879752717244782545# which shows side-by-side prognoses from Schiff and bullish pundits on CNBC and Fox News before the recession. You can't get to prosperity by devaluing your currency because prosperity depends on savings and investment and a falling currency encourages the opposite.
      - rortian 17y ago
        Alright, here's a problem for you, no one will assert that bullish pundits on CNBC are credible. http://www.cepr.net/index.php/dean-baker/ http://www.cepr.net/index.php/dean-baker/ Dean Baker is an actual economist and he called the housing bubble. I find your last sentence bizarre as it asserts as a truism something that is not really true at all. You believe people who are on the on the fringe of economics and seem to enjoy it so more power to you.
- Groxx 17y ago
  Pulling it out would be M.A.D., it effectively won't happen. And given that the rest of the world would pretty much tumble with it, there'd be a mad scramble to protect the USA from bankrupting, and a mad attack on China for doing so. As evidence, just look how USA's economic downturns are reflected by others shortly after. They are likely to try to use the debt to pressure the USA though, which is still a fairly real threat. If they're not already, that is, I wouldn't be surprised (and it wouldn't be illogical for them to do so, it is in their best interest to have as much control as they can get).
  - dsplittgerber 17y ago
    Worrying about this was one of the primary reasons for creating the U.S.-China Strategic and Economic Dialogue, so these topics are being adressed at the highest levels of both governments.
  - _delirium 17y ago
    Yeah, I think China would avoid doing anything that looked like an outright hostile act, like dumping all its reserves simultaneously. If they did so, and the U.S. considers it a hostile act rather than merely commercial maneuvering, there are a pretty wide range of options to retaliate, which makes it something of a M.A.D. scenario. Among other things, the U.S. could void the $1t of outstanding Treasury bonds held by China, seize the assets of Chinese companies in the US, and/or ban imports from China. I think both countries would fare pretty poorly from an all-out economic/trade war, even if it didn't spill over into actual hostilities (there are edge scenarios where you can imagine e.g. an angry U.S. recognizing Taiwan's independence in retaliation).
- lallysingh 17y ago
  It's not #1. That's Japan. edit: the source: http://www.cnn.com/2010/BUSINESS/02/16/china.us.treasuries/index.html http://www.cnn.com/2010/BUSINESS/02/16/china.us.treasuries/i...
  - dsplittgerber 17y ago
    Not true, it's China. "China’s foreign-exchange reserves now total $2.4 trillion, of which about 70% are thought to be in dollars." http://www.economist.com/business-finance/economics-focus/displaystory.cfm?story_id=15770808 http://www.economist.com/business-finance/economics-focus/di... http://en.wikipedia.org/wiki/List_of_countries_by_foreign_exchange_reserves http://en.wikipedia.org/wiki/List_of_countries_by_foreign_ex... Edit: Downvoting, seriously? If China has 2.4 trillion foreign currency reserves, 50-70% of which are USD, and Japan has 1.0 trillion foreign currency reserves totally, how can Japan ever be ahead of China? 2nd Edit: http://www.treas.gov/tic/mfh.txt http://www.treas.gov/tic/mfh.txt Seems like CNN/FT.com had it wrong?
    - borism 17y ago
      forex reserves != US public debt although China is #1 holder of both, US public debt held by China is 24.3% of total foreign ownership (Japan #2 @ 20%)
      - dsplittgerber 17y ago
        You are right of course, which is why I talked about USD reserves, not debt. Speaking about debt, China also holds ~400 billion of Fannie/Freddie bonds, which is not included in the official figure, neither for debt calculation, nor for foreign ownership, I guess.

Locke1689 17y ago

When you owe someone $1 million, you have a problem. When you owe someone $1 trillion, they have a problem.

bendtheblock 17y ago
Not sure I follow the reasoning here. Can you explain?
- hyperbovine 17y ago
  What is enforcing the repayment of said debt, I think is what he is getting at. Not that I agree.
  - Locke1689 17y ago
    Partially. I was also trying to deliver the gravity of the holdings involved in this case. $1 trillion is economy-shaping money -- no country can simply "drop" $1 trillion dollars. China's economic future is now inexorably tangled with the United States'.
- Locke1689 17y ago
  Sure, I don't have a bunch of time but I can try and reiterate some of the economists' positions that I have read (I am not a professional economist). It seems that one of the primary reasons for China's purchase of such a large share of US Treasury bonds (a little over 10%) has been to artificially lower the price of the Renminbi as compared to other currencies. This has become almost the cornerstone of the Chinese manufacturing economy -- because the Renminbi is artificially deflated compared to Western currencies, manufacturing is very cheap in China and their export status increases greatly. One of the problems with selling those bonds is that the reverse would happen: the Renminbi would shoot up, devaluing Chinese exports greatly. In contrast, the United States would experience massive devaluation of the dollar. This would produce negatives and positives, the positives being a large increase in the value of US exports. In addition, dumping U.S. assets would cause the value of their own dollar holdings to decrease, causing further problems. Simply enough, the amount of U.S. Treasury bonds/securities that China holds at the moment is enough to bankrupt its own economy if they decide against it. In other words, China holds a good bargaining position right now, but cannot fully backup the threat without destroying their own reserves and manufacturing base. I don't have time to find the links right now but some very interesting economists on this issue are the Brookings Institute, Paul Samuelson (MIT), and Paul Krugman (Princeton).

deleted 17y ago

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cynicalkane 17y ago

So what? It's not like China can call the debt. The worst they can do is dump it on the market, whereupon banks and money managers across the globe will devour it like money-flavored hotcakes. There will be a brief market burp, and some change in USD value and interest rates, but at great fiscal expense to China. Disclaimer: IANAT (am not a trader).

deleted 17y ago
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albertsun 17y ago

Sovereign lending relations don't work quite the same way as they do for you or I.