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This is what really irks the West. China did not allow themselves to be controlled by external debt like the Soviet Union. The Chinese have not only avoided deb

by dnomad 8y ago

This is what really irks the West. China did not allow themselves to be controlled by external debt like the Soviet Union. The Chinese have not only avoided debt slavery they have actually begun to weaponize their own debt power and such that they are now the world's largest sovereign lender.

User23 8y ago
The US doesn't borrow money from China. The US swaps treasuries for reserves with the Federal Reserve, which then sells those treasuries to primary dealers, who in turn sell them on the open market where anyone including foreign sovereigns like China, can buy them. In the unlikely event that the Federal Reserve failed to sell those instruments, they'd be left on their balance sheet and the interest would be remitted back to the US treasury. So long as there is any demand for US dollars though, there will always be a demand for interest bearing instruments that have near cash-like liquidity. Of course if you're referring to China's African colonies and their use of debt to control the local governments, then yes that's accurate.
- sonnyblarney 8y ago
  It's the same thing as borrowing. US gov sells TBills, those TBills are bought by China. The transaction you described also translates government debt into currency, which China also sits on, so it's a kind of an exchange debt. So the US 'owes' China a gazillion dollars in services and stuff. One way or another.
  - User23 8y ago
    This is hard to wrap one's head around, so let me try again with some more detail. The US doesn't sell TBills. It creates those interest bearing IOUs ex nihilo, and then swaps them for reserves (also created ex nihilo) with the Federal Reserve. Primary Dealers buy treasuries from the Fed, not from the treasury.[1] The process is absolutely nothing like going to a bank or anyone else to borrow money. [1]https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers_in_the_United_States https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers...
    - sonnyblarney 8y ago
      Yes, I get it - but the mechanism does not matter: TBills and TBonds US government debt. US dollars are a form of debt to the US economy. So If you hold TBills/TBonds, the US government owes you money. If you hold USD, then the US economy owes you 'stuff' that you can exchange those dollars for. Anyone who holds TBills/TBonds is lending to the US Government. China holds a lot of both, ergo the US is indebted to them ... essentially, the US does borrow money from China. Though the sale may not be directly to China, ultimately, that's who's sitting on those bonds/cash.
      - User23 8y ago
        "the mechanism does not matter" only if you have no interest in understanding how the system actually works. China isn't the US's lender and they do not make any loans. They can't foreclose, because no loan exists. All they can do is take their coupons or sell the security to someone else who will do the same. China can't starve the Treasury of money because the Treasury exclusively borrows reserves from the Federal Reserve. Also worth noting is that with the stroke of a pen Congress and the President acting in concert could restore the Treasury's power to spend money into existence directly. The US creates securities as a matter of public policy, not because it actually needs them to finance itself.
        TangoTrotFox 8y ago
        While everything you've said is accurate, I think you're intentionally skirting around the meat of the issue and that is the value of currency. That we can we can 'print' (colloquially speaking) as much money as we like is not in dispute. However, the consequences of choosing to do so are the heart of the matter. In the past our money was implicitly backed by oil thanks to our petro dollar arrangements, but those times are coming to an end. In the relatively near future our economic decisions will be left to stand, or fall, on their own merit - and substantial outstanding debt owned by foreign not-creditor-creditors will play a role in this.
        User23 8y ago
  - trocadero 8y ago
    The US owes China gazillion dollars. Not a gazillion dollars in services and stuff. That's a huge difference because at any point the US can create a gazillion dollars for virtually no effort.
    - jnurmine 8y ago
      Won't "printing more money" crash the value of the currency?
      - User23 8y ago
        Inflation is caused by too much currency chasing too few goods and services. Creating money alone won't cause inflation, that money has to actually be spent in a market where demand is already greater than or equal to supply. One great example of inflation is the housing market. Private sector banks create money from nothing, by balance sheet expansion, every time they originate a mortgage. Because the stock of housing is less than the demand, every time the banks create more money it drives prices up. Because money in the housing market mostly stays in the housing market, that is people usually take the proceeds from a sale and put them into a new house, there isn't too much spillover to non-housing markets. The same is true for student loans. So as you can see, two of the largest examples of inflation in the US are caused by the private sector, not Treasury spending. Please note though that the Federal Government does set banking policy as well, along with various direct and indirect guaranty programs, so in that sense ultimately they are responsible.
      - trocadero 8y ago
        It will have an impact, no doubt, but probably more like a few points higher inflation than a total crash. Either way, the point is that owing money in a currency you control is vastly different than owing money in a currency you don't.
    - sonnyblarney 8y ago
      The US owes China both a gazillion dollars, and additionally a gazillion dollars in stuff that dollars can buy - because they have not just US debt, but they also have currency.

by dnomad 8y ago

User23 8y ago

The US doesn't borrow money from China. The US swaps treasuries for reserves with the Federal Reserve, which then sells those treasuries to primary dealers, who in turn sell them on the open market where anyone including foreign sovereigns like China, can buy them. In the unlikely event that the Federal Reserve failed to sell those instruments, they'd be left on their balance sheet and the interest would be remitted back to the US treasury. So long as there is any demand for US dollars though, there will always be a demand for interest bearing instruments that have near cash-like liquidity. Of course if you're referring to China's African colonies and their use of debt to control the local governments, then yes that's accurate.

sonnyblarney 8y ago
It's the same thing as borrowing. US gov sells TBills, those TBills are bought by China. The transaction you described also translates government debt into currency, which China also sits on, so it's a kind of an exchange debt. So the US 'owes' China a gazillion dollars in services and stuff. One way or another.
- User23 8y ago
  This is hard to wrap one's head around, so let me try again with some more detail. The US doesn't sell TBills. It creates those interest bearing IOUs ex nihilo, and then swaps them for reserves (also created ex nihilo) with the Federal Reserve. Primary Dealers buy treasuries from the Fed, not from the treasury.[1] The process is absolutely nothing like going to a bank or anyone else to borrow money. [1]https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers_in_the_United_States https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers...
  - sonnyblarney 8y ago
    Yes, I get it - but the mechanism does not matter: TBills and TBonds US government debt. US dollars are a form of debt to the US economy. So If you hold TBills/TBonds, the US government owes you money. If you hold USD, then the US economy owes you 'stuff' that you can exchange those dollars for. Anyone who holds TBills/TBonds is lending to the US Government. China holds a lot of both, ergo the US is indebted to them ... essentially, the US does borrow money from China. Though the sale may not be directly to China, ultimately, that's who's sitting on those bonds/cash.
    - User23 8y ago
      "the mechanism does not matter" only if you have no interest in understanding how the system actually works. China isn't the US's lender and they do not make any loans. They can't foreclose, because no loan exists. All they can do is take their coupons or sell the security to someone else who will do the same. China can't starve the Treasury of money because the Treasury exclusively borrows reserves from the Federal Reserve. Also worth noting is that with the stroke of a pen Congress and the President acting in concert could restore the Treasury's power to spend money into existence directly. The US creates securities as a matter of public policy, not because it actually needs them to finance itself.
      - TangoTrotFox 8y ago
        While everything you've said is accurate, I think you're intentionally skirting around the meat of the issue and that is the value of currency. That we can we can 'print' (colloquially speaking) as much money as we like is not in dispute. However, the consequences of choosing to do so are the heart of the matter. In the past our money was implicitly backed by oil thanks to our petro dollar arrangements, but those times are coming to an end. In the relatively near future our economic decisions will be left to stand, or fall, on their own merit - and substantial outstanding debt owned by foreign not-creditor-creditors will play a role in this.
        User23 8y ago
- trocadero 8y ago
  The US owes China gazillion dollars. Not a gazillion dollars in services and stuff. That's a huge difference because at any point the US can create a gazillion dollars for virtually no effort.
  - jnurmine 8y ago
    Won't "printing more money" crash the value of the currency?
    - User23 8y ago
      Inflation is caused by too much currency chasing too few goods and services. Creating money alone won't cause inflation, that money has to actually be spent in a market where demand is already greater than or equal to supply. One great example of inflation is the housing market. Private sector banks create money from nothing, by balance sheet expansion, every time they originate a mortgage. Because the stock of housing is less than the demand, every time the banks create more money it drives prices up. Because money in the housing market mostly stays in the housing market, that is people usually take the proceeds from a sale and put them into a new house, there isn't too much spillover to non-housing markets. The same is true for student loans. So as you can see, two of the largest examples of inflation in the US are caused by the private sector, not Treasury spending. Please note though that the Federal Government does set banking policy as well, along with various direct and indirect guaranty programs, so in that sense ultimately they are responsible.
    - trocadero 8y ago
      It will have an impact, no doubt, but probably more like a few points higher inflation than a total crash. Either way, the point is that owing money in a currency you control is vastly different than owing money in a currency you don't.
  - sonnyblarney 8y ago
    The US owes China both a gazillion dollars, and additionally a gazillion dollars in stuff that dollars can buy - because they have not just US debt, but they also have currency.