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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 TBill

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
    The US dollar is backed by the taxing power of the United States and the productivity of the US economy. Our economic decisions have always stood and fallen on their own merits. Those merits include the world's largest consumer market and the world's putative strongest military. Foreign desire to export to the US and thereby acquire dollar denominated assets is a function of those merits. So long as that situation holds, foreigners will always desire to swap their non-interest bearing reserves for interest bearing treasuries, at any nominal positive interest rate. So long as enough oil is denominated in dollars to satisfy US demand for imports, it doesn't really matter what currency other countries pay. A eurodollar crunch doesn't have any appreciable effect on US domestic prices and neither will a eurodollar glut. Petrodollars are eurodollars. [1] To cut right into the meat of the issue, US issued currency will remain valuable until economic and political collapse destroy US consumer markets and productivity. Foreign asset holders cannot cause that by refusing to show up at treasury auctions. It would take a serious civil war, a world war where the mainland USA wasn't left untouched, or a similar multi-megadeath level catastrophe. And even then it wouldn't be impossible for the US to pull through as a going concern, as it were. [1]https://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-are-eurodollars-and-eurodollar-base-money-is-shrinking/ https://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-...
- sonnyblarney 8y ago
  You're confusing mechanism with economics. "China isn't the US's lender and they do not make any loans." Yes, China is a lender to the US, in fact the largest lender [1]. Treasures are loans/bonds. Whoever owns them is a lender to the United States. It's economically the same thing as any other nation selling bonds. "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." It's the same thing as government debt in all other nations. If you loan money to Greece, you can sell that Greek debt to someone else. The economics of government debt are the same in the US, Canada, and US even if 'how it gets sold' is different. "China can't starve the Treasury of money " China can 'starve' any nation to the extent they are a lender to that nation. China's demand for Treasuries makes up part of the demand curve for Treasuries, along with all the the demand. In just the same way as there is demand for Greek, UK and Canadian bonds. Or stocks. Or corn, or whatever. If China was the only buyer of US Treasuries you can dam well be sure they can 'starve the Treasury' - because if nobody is buying Treasuries, then the government is printing money. "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." Every nation on Earth can do this. It's called 'printing money'. It's not a new idea, and it has dramatic consequences including hyperinflation. Summary: China is the #1 lender to the US both in Treasuries (and by holding US dollars.) US government debt operates differently, but economically is the same thing as government debt to basically any other nation. The US does have the advantage of 'seignorage' which is to say that because so many people need US dollars to do so many things, that there is a nice bit of 'cushion' in demand for USD, but that's only worth so much. Otherwise it's just like anywhere else: governments loan at a certain rate, or they can tax, or they can print money and see confidence lost in their currency. [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States#/media/File:Composition_of_U.S._Long-Term_Treasury_Debt_2000-2014.svg https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
  - User23 8y ago
    For the benefit of anyone else reading this, I'd like to point out the misconceptions and misinformation above. > China can 'starve' any nation to the extent they are a lender to that nation. China's demand for Treasuries makes up part of the demand curve for Treasuries, along with all the the demand. The Federal Reserve controls short term yields completely through its open market operations desk. It controls long term yields as well, because they are a function of expectations of short term yields. If China, or Russia, or anyone else stops buying treasuries, the Primary Dealers will pick up the slack, and they will always take that deal because no matter what the yields are they make money off it. > If China was the only buyer of US Treasuries you can dam well be sure they can 'starve the Treasury' - because if nobody is buying Treasuries, then the government is printing money. The Federal Reserve, not China, creates reserves every time the Treasury or a member bank asks it to, which is all the time. It's called an elastic money supply. Relatively few reserve notes are actually printed, because there isn't a lot of demand for Federal Reserve Notes compared to demand accounts. >Every nation on Earth can do this. It's called 'printing money'. It's not a new idea, and it has dramatic consequences including hyperinflation. Hyperinflation is a consequence of a collapse in productivity, not of money printing. Some governments turn to printing more money as their money becomes worthless, and there is a feedback loop, but that is a consequence not a cause. Hyperinflation can also occur when the money issuing sovereign effectively loses their sovereignty, fully or partially. > China is the #1 lender to the US both in Treasuries (and by holding US dollars.) The Federal Reserve is the USA's bank, not China. China is just another depositor at the Fed and whether they choose to store their capital account surplus with the USA in a interest free account (reserves) or an interest bearing account (treasuries) is irrelevant to the solvency of the US Treasury. I hope this helped everyone else with an interest in understanding some of the widespread ideologically motivated ("money printing" is a shibboleth) misconceptions in this area.

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
  The US dollar is backed by the taxing power of the United States and the productivity of the US economy. Our economic decisions have always stood and fallen on their own merits. Those merits include the world's largest consumer market and the world's putative strongest military. Foreign desire to export to the US and thereby acquire dollar denominated assets is a function of those merits. So long as that situation holds, foreigners will always desire to swap their non-interest bearing reserves for interest bearing treasuries, at any nominal positive interest rate. So long as enough oil is denominated in dollars to satisfy US demand for imports, it doesn't really matter what currency other countries pay. A eurodollar crunch doesn't have any appreciable effect on US domestic prices and neither will a eurodollar glut. Petrodollars are eurodollars. [1] To cut right into the meat of the issue, US issued currency will remain valuable until economic and political collapse destroy US consumer markets and productivity. Foreign asset holders cannot cause that by refusing to show up at treasury auctions. It would take a serious civil war, a world war where the mainland USA wasn't left untouched, or a similar multi-megadeath level catastrophe. And even then it wouldn't be impossible for the US to pull through as a going concern, as it were. [1]https://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-are-eurodollars-and-eurodollar-base-money-is-shrinking/ https://ftalphaville.ft.com/2016/01/25/2151037/petrodollars-...
sonnyblarney 8y ago
You're confusing mechanism with economics. "China isn't the US's lender and they do not make any loans." Yes, China is a lender to the US, in fact the largest lender [1]. Treasures are loans/bonds. Whoever owns them is a lender to the United States. It's economically the same thing as any other nation selling bonds. "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." It's the same thing as government debt in all other nations. If you loan money to Greece, you can sell that Greek debt to someone else. The economics of government debt are the same in the US, Canada, and US even if 'how it gets sold' is different. "China can't starve the Treasury of money " China can 'starve' any nation to the extent they are a lender to that nation. China's demand for Treasuries makes up part of the demand curve for Treasuries, along with all the the demand. In just the same way as there is demand for Greek, UK and Canadian bonds. Or stocks. Or corn, or whatever. If China was the only buyer of US Treasuries you can dam well be sure they can 'starve the Treasury' - because if nobody is buying Treasuries, then the government is printing money. "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." Every nation on Earth can do this. It's called 'printing money'. It's not a new idea, and it has dramatic consequences including hyperinflation. Summary: China is the #1 lender to the US both in Treasuries (and by holding US dollars.) US government debt operates differently, but economically is the same thing as government debt to basically any other nation. The US does have the advantage of 'seignorage' which is to say that because so many people need US dollars to do so many things, that there is a nice bit of 'cushion' in demand for USD, but that's only worth so much. Otherwise it's just like anywhere else: governments loan at a certain rate, or they can tax, or they can print money and see confidence lost in their currency. [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States#/media/File:Composition_of_U.S._Long-Term_Treasury_Debt_2000-2014.svg https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
- User23 8y ago
  For the benefit of anyone else reading this, I'd like to point out the misconceptions and misinformation above. > China can 'starve' any nation to the extent they are a lender to that nation. China's demand for Treasuries makes up part of the demand curve for Treasuries, along with all the the demand. The Federal Reserve controls short term yields completely through its open market operations desk. It controls long term yields as well, because they are a function of expectations of short term yields. If China, or Russia, or anyone else stops buying treasuries, the Primary Dealers will pick up the slack, and they will always take that deal because no matter what the yields are they make money off it. > If China was the only buyer of US Treasuries you can dam well be sure they can 'starve the Treasury' - because if nobody is buying Treasuries, then the government is printing money. The Federal Reserve, not China, creates reserves every time the Treasury or a member bank asks it to, which is all the time. It's called an elastic money supply. Relatively few reserve notes are actually printed, because there isn't a lot of demand for Federal Reserve Notes compared to demand accounts. >Every nation on Earth can do this. It's called 'printing money'. It's not a new idea, and it has dramatic consequences including hyperinflation. Hyperinflation is a consequence of a collapse in productivity, not of money printing. Some governments turn to printing more money as their money becomes worthless, and there is a feedback loop, but that is a consequence not a cause. Hyperinflation can also occur when the money issuing sovereign effectively loses their sovereignty, fully or partially. > China is the #1 lender to the US both in Treasuries (and by holding US dollars.) The Federal Reserve is the USA's bank, not China. China is just another depositor at the Fed and whether they choose to store their capital account surplus with the USA in a interest free account (reserves) or an interest bearing account (treasuries) is irrelevant to the solvency of the US Treasury. I hope this helped everyone else with an interest in understanding some of the widespread ideologically motivated ("money printing" is a shibboleth) misconceptions in this area.