4 ms·

Not sure I follow the reasoning here. Can you explain?

by bendtheblock 17y ago

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).
- dandelany 17y ago
  Right, but they're not threatening to sell their treasury notes, they're continuing to hoard them, which keeps Chinese exports artificially competitive, which is a problem for the US. China would have a problem if they wanted to sell, but they don't; they're content to hold our debt, collect interest payments, and use the leverage to manipulate their currency. See also: http://www.nytimes.com/2010/03/15/opinion/15krugman.html http://www.nytimes.com/2010/03/15/opinion/15krugman.html
- deleted 17y ago
  [deleted]
- netcan 17y ago
  When people scenario-monger about economic "attacks," you mostly find that they forget to consider the other side's position. Cutting off oil production (Iran, UAE, Venezuela, Saudi Arabia) is something you hear every so often. These are all countries where oil is most of the economy, virtually all of the exports and the state/king directly controls it. Take Saudi Arabia. Apart from continuing to directly feed the public with grants, subsidies and giveaways, Saudi Arabia has tens (or maybe even hundreds) of thousands of royal family members, religious elites and tribal leaders relying on money from selling oil. Cutting off oil is impossible. Sure China has the theoretical ability to hurt the US economically. But the US has an even bigger economy and just as many ways of pinching back. Besides that, there is no such thing as a pinch that doesn't hurt the pincher.
fleitz 17y ago
When you owe someone 1 trillion dollars and you and your citizens have the fruits of their labor, if you decide not to pay them they are screwed. Since China is politically unpopular it would be fairly easy to orchestrate a politically suitable reason for not paying them. e.g. We're taking a stand for the citizens of the world and refuse to trade with China until they implement the Kyoto protocol. e.g. Due to human rights abuses and the refusal to make progress on the issue we are suspending trade with China. I'm sure there is some more politically suave reason but if we can't pay look for China's human rights / eco record to become an issue, ultimately culminating in our refusal to pay them.
- rw 17y ago
  e.g. until the United States implements the Kyoto Protocol :-)
  - fleitz 17y ago
    We're talking politics, what your side does doesn't matter. Notice that the reason stated that the US can't ratify it is because China is essentially exempt under the current protocol. The current US reasoning plays well into the aforementioned reasons. e.g. We have to stop paying them so they'll ratify a non-exempt agreement so that we can ratify it. :)
- IsaacL 17y ago
  If the US could make excuses for not paying off its debts, US Treasury bonds wouldn't have a triple AAA rating.
  - Locke1689 17y ago
    US Treasury bonds are not rated.
    - rdtsc 17y ago
      But a country is.
    - 17y ago
mkramlich 17y ago
Here's mine -- though it's only one way of looking at it: If the US "owes" China $1 trillion, it means that the US received $1 trillion in physical goods, and in return China got $1 trillion in little pieces of paper. Another way of describing it is the US receives actual money, which can be spent now, in exchange for only giving "promises" back, which may or may not actually have to be replaced with money in the future. So yeah. While debt for individuals, or in smaller amounts is often "not good", debt starts to get weird and quantum-meta-paradoxical when it is between countries and involves huge sums. Also, ultimately, China can't make the US "repay" them or cough up cash. They could threaten to start a war, but a war between the China and US would arguably be just as bad for them as for US. Potentially worse for them. It's complex, so I won't claim this is a black-or-white truth. But these are some of the factors involved, I think.

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).

dandelany 17y ago
Right, but they're not threatening to sell their treasury notes, they're continuing to hoard them, which keeps Chinese exports artificially competitive, which is a problem for the US. China would have a problem if they wanted to sell, but they don't; they're content to hold our debt, collect interest payments, and use the leverage to manipulate their currency. See also: http://www.nytimes.com/2010/03/15/opinion/15krugman.html http://www.nytimes.com/2010/03/15/opinion/15krugman.html
deleted 17y ago
[deleted]
netcan 17y ago
When people scenario-monger about economic "attacks," you mostly find that they forget to consider the other side's position. Cutting off oil production (Iran, UAE, Venezuela, Saudi Arabia) is something you hear every so often. These are all countries where oil is most of the economy, virtually all of the exports and the state/king directly controls it. Take Saudi Arabia. Apart from continuing to directly feed the public with grants, subsidies and giveaways, Saudi Arabia has tens (or maybe even hundreds) of thousands of royal family members, religious elites and tribal leaders relying on money from selling oil. Cutting off oil is impossible. Sure China has the theoretical ability to hurt the US economically. But the US has an even bigger economy and just as many ways of pinching back. Besides that, there is no such thing as a pinch that doesn't hurt the pincher.

fleitz 17y ago

When you owe someone 1 trillion dollars and you and your citizens have the fruits of their labor, if you decide not to pay them they are screwed. Since China is politically unpopular it would be fairly easy to orchestrate a politically suitable reason for not paying them. e.g. We're taking a stand for the citizens of the world and refuse to trade with China until they implement the Kyoto protocol. e.g. Due to human rights abuses and the refusal to make progress on the issue we are suspending trade with China. I'm sure there is some more politically suave reason but if we can't pay look for China's human rights / eco record to become an issue, ultimately culminating in our refusal to pay them.

rw 17y ago
e.g. until the United States implements the Kyoto Protocol :-)
- fleitz 17y ago
  We're talking politics, what your side does doesn't matter. Notice that the reason stated that the US can't ratify it is because China is essentially exempt under the current protocol. The current US reasoning plays well into the aforementioned reasons. e.g. We have to stop paying them so they'll ratify a non-exempt agreement so that we can ratify it. :)
IsaacL 17y ago
If the US could make excuses for not paying off its debts, US Treasury bonds wouldn't have a triple AAA rating.
- Locke1689 17y ago
  US Treasury bonds are not rated.
  - rdtsc 17y ago
    But a country is.
  - 17y ago

mkramlich 17y ago

Here's mine -- though it's only one way of looking at it: If the US "owes" China $1 trillion, it means that the US received $1 trillion in physical goods, and in return China got $1 trillion in little pieces of paper. Another way of describing it is the US receives actual money, which can be spent now, in exchange for only giving "promises" back, which may or may not actually have to be replaced with money in the future. So yeah. While debt for individuals, or in smaller amounts is often "not good", debt starts to get weird and quantum-meta-paradoxical when it is between countries and involves huge sums. Also, ultimately, China can't make the US "repay" them or cough up cash. They could threaten to start a war, but a war between the China and US would arguably be just as bad for them as for US. Potentially worse for them. It's complex, so I won't claim this is a black-or-white truth. But these are some of the factors involved, I think.