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It really depends on what we use it for, what strings are attached to the money besides interest (official or otherwise), how that would affect our credit ratin

It really depends on what we use it for, what strings are attached to the money besides interest (official or otherwise), how that would affect our credit rating / percieved value of the dollar with other countries, our effectiveness in spending that money, etc. I’d submit that it isn’t a question we can really predict the answer to. Way too many variables.

cryptonector 9y ago
Not really. We could burn the money and then default: we'd still have received $1trn worth of gadgets. Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. And, of course, one could do worse than burn $1trn. One could finance one's enemies, for example.
- phkahler 9y ago
  >> Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. The OP asked what if the US borrowed $1trn from china and spent it. Where does this $trn worth of gadgets come from in that scenario?
  - AnimalMuppet 9y ago
    The OP asked what if the US borrowed $1trn from china and spent it all on military spending. That's where the $1trn worth of "gadgets" comes from.
    - cryptonector 9y ago
      China exports N dollars' worth of trinkets to the U.S., then buys N dollars' worth of dollar-denominated assets, the majority of which are U.S. treasuries (so China lends them back to the U.S.). Therefore "what if China lent the U.S. $1trn ..." is roughly equivalent to and interchangeable with "what if China sold $1trn worth of trinkets to the U.S. ..." and vice-versa.
      - vageli 9y ago
        Is the purchasing of bonds the only form in which foreign nations lend to one another?
        cryptonector 9y ago
        As governments? Yes. Of course, the private sectors can and do also lend to other countries (both governments and private sectors).
  - cryptonector 9y ago
    The U.S. does not borrow dollars from China without China having exported that many dollars' worth of trinkets to the U.S., for how else would China get those dollars to lend back to the U.S.? Today's mercantilism is all of this form: country X maintains a long-term trade surplus with the U.S., forces its exporters to exchange their dollars for local currency, and then country X's central bank buys U.S. treasuries (i.e., lends to the U.S. government) with those dollars. Yes, those central banks could purchase other dollar-denominated assets, and if the U.S. Federal government did not engage in deficit spending then those central banks would have to buy other dollar-denominated assets -- or they would have to let exporters keep their dollars and figure out what to do with them, or perhaps trade would have to balance. Another way to put this is that Congress' deficit spending drives the U.S. trade deficit. If the U.S. budget suddenly went into long-term surplus then the mercantilist nations would have to start buying other dollar-denominated assets, or else the trade deficit would have to swing into surplus (which would then see the U.S. become a mercantilist nation...). So when someone says "what if China lent the U.S. $1trn and ..." what they're saying is equivalent to "what if China exported $1trn worth of trinkets to the U.S. and ...". And look! It's what actually happens. China maintains a long-term trade surplus with the U.S., so it's continually selling $$$$' worth of trinkets to the U.S. and continually lending similar amounts of $$$$ to the U.S. Compare to "what if China lent the U.S. 10trn Renmimbi and ..." -- completely different idea, though, of course, the U.S. only borrows in dollars. Yes, I didn't say all this earlier, but people should really know this (people really don't). EDIT: The 15 upvotes above are from people who do know these basic facts of economics.
    - slavik81 9y ago
      Thank you for the explanation, though the edit detracts from an otherwise excellent post.
    - phkahler 9y ago
      China could just as easily export oil to any country inn the world in exchange for us dollars. They could then buy US treasuries with those dollars. No need to conflate trade deficits with loaning money. They could also buy any number of things around the world with US dollars earned from selling us stuff. Given all that, I really think someone in This discussion is counting some dollars twice.
- quickben 9y ago
  Not really. A default will set any economy far back. You also risk unrests what with pensions cut and similar effects. Look at Greece, they went through hell just not to default (again).
  - kryptiskt 9y ago
    A large part of Greece's problem is that they're in the Eurozone and don't have any control over their monetary policy.
  - selectodude 9y ago
    Greece is the only developed nation to default on an IMF bond payment and negotiated a 50 percent haircut on their bank-held debt. They definitely defaulted.
  - cryptonector 9y ago
    I wasn't suggesting we default. Besides, countries that only borrow in their own currency can... "default" by inflating (and they do it all the time), so they never actually default in the sense that you have in mind.
    - fjsolwmv 9y ago
      Inflation is simply a partial default.
      - cryptonector 9y ago
        Yes, of course.

cryptonector 9y ago

Not really. We could burn the money and then default: we'd still have received $1trn worth of gadgets. Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. And, of course, one could do worse than burn $1trn. One could finance one's enemies, for example.

phkahler 9y ago
>> Sure, it'd be better to use the money productively, then we get two things: $1trn worth of gadgets + whatever $1trn bought in the U.S. The OP asked what if the US borrowed $1trn from china and spent it. Where does this $trn worth of gadgets come from in that scenario?
- AnimalMuppet 9y ago
  The OP asked what if the US borrowed $1trn from china and spent it all on military spending. That's where the $1trn worth of "gadgets" comes from.
  - cryptonector 9y ago
    China exports N dollars' worth of trinkets to the U.S., then buys N dollars' worth of dollar-denominated assets, the majority of which are U.S. treasuries (so China lends them back to the U.S.). Therefore "what if China lent the U.S. $1trn ..." is roughly equivalent to and interchangeable with "what if China sold $1trn worth of trinkets to the U.S. ..." and vice-versa.
    - vageli 9y ago
      Is the purchasing of bonds the only form in which foreign nations lend to one another?
      - cryptonector 9y ago
        As governments? Yes. Of course, the private sectors can and do also lend to other countries (both governments and private sectors).
- cryptonector 9y ago
  The U.S. does not borrow dollars from China without China having exported that many dollars' worth of trinkets to the U.S., for how else would China get those dollars to lend back to the U.S.? Today's mercantilism is all of this form: country X maintains a long-term trade surplus with the U.S., forces its exporters to exchange their dollars for local currency, and then country X's central bank buys U.S. treasuries (i.e., lends to the U.S. government) with those dollars. Yes, those central banks could purchase other dollar-denominated assets, and if the U.S. Federal government did not engage in deficit spending then those central banks would have to buy other dollar-denominated assets -- or they would have to let exporters keep their dollars and figure out what to do with them, or perhaps trade would have to balance. Another way to put this is that Congress' deficit spending drives the U.S. trade deficit. If the U.S. budget suddenly went into long-term surplus then the mercantilist nations would have to start buying other dollar-denominated assets, or else the trade deficit would have to swing into surplus (which would then see the U.S. become a mercantilist nation...). So when someone says "what if China lent the U.S. $1trn and ..." what they're saying is equivalent to "what if China exported $1trn worth of trinkets to the U.S. and ...". And look! It's what actually happens. China maintains a long-term trade surplus with the U.S., so it's continually selling $$$$' worth of trinkets to the U.S. and continually lending similar amounts of $$$$ to the U.S. Compare to "what if China lent the U.S. 10trn Renmimbi and ..." -- completely different idea, though, of course, the U.S. only borrows in dollars. Yes, I didn't say all this earlier, but people should really know this (people really don't). EDIT: The 15 upvotes above are from people who do know these basic facts of economics.
  - slavik81 9y ago
    Thank you for the explanation, though the edit detracts from an otherwise excellent post.
  - phkahler 9y ago
    China could just as easily export oil to any country inn the world in exchange for us dollars. They could then buy US treasuries with those dollars. No need to conflate trade deficits with loaning money. They could also buy any number of things around the world with US dollars earned from selling us stuff. Given all that, I really think someone in This discussion is counting some dollars twice.
quickben 9y ago
Not really. A default will set any economy far back. You also risk unrests what with pensions cut and similar effects. Look at Greece, they went through hell just not to default (again).
- kryptiskt 9y ago
  A large part of Greece's problem is that they're in the Eurozone and don't have any control over their monetary policy.
- selectodude 9y ago
  Greece is the only developed nation to default on an IMF bond payment and negotiated a 50 percent haircut on their bank-held debt. They definitely defaulted.
- cryptonector 9y ago
  I wasn't suggesting we default. Besides, countries that only borrow in their own currency can... "default" by inflating (and they do it all the time), so they never actually default in the sense that you have in mind.
  - fjsolwmv 9y ago
    Inflation is simply a partial default.
    - cryptonector 9y ago
      Yes, of course.