4 ms·

And how many trillions in "I.O.U.S" are circulating in the US financial system?

irjustin 7y ago
The "what about"-ism doesn't really help or work here. I.O.U's are essentially some sort of loan (with or without interest). The point of a loan/iou is it's okay a long as you can pay later. This works great in a growing economy. Leverage. But once things start slowing down, the pressures start to mount and i.o.u's start never getting paid back slower and slower to never - defaulting. There's a limit how far one economy can grow and for China it's already begun to slow. These types of loans are a symptom of that.
- joelx 7y ago
  I think the parent and grandparent comments miss the point of the article. This is basically a return to the barter system because the Chinese monetary system is not able to meet businesses needs. This should be a giant red flag to Chinese leaders.
  - krageon 7y ago
    Can you explain to me (and perhaps people like me) exactly what the problem with that is? Goods are being exchanged, so it is fine - but I don't have a huge background in financial systems. I would appreciate a different point of view on that.
    - joelx 7y ago
      "In a barter exchange one good is traded directly for another. This form of exchange requires a double coincidence of wants, meaning that each trader has what the other trader wants and wants what the other has. Without a double coincidence of wants the exchange process can become exceedingly complex, requiring a great deal of resources to complete transactions, resources that cannot be used for production. In fact, inefficient barter trading is the primary reason that money was invented." - good explanation from AmosWeb
  - analognoise 7y ago
    ...but they love Red flags?
  - xster 7y ago
    That's almost like saying asset swaps and mortgage backed securities and all non-cash financial transactions are returns to a barter system.
- sschueller 7y ago
  Didn't you just describe student loan or credit card dept? Those depend on the economy growing so people can pay them back later. If the economy stops growing and people loose they jobs they will start to default on those loans.
  - mschuster91 7y ago
    Student loans in the US are bankruptcy-exempt.

The "what about"-ism doesn't really help or work here. I.O.U's are essentially some sort of loan (with or without interest). The point of a loan/iou is it's okay a long as you can pay later. This works great in a growing economy. Leverage. But once things start slowing down, the pressures start to mount and i.o.u's start never getting paid back slower and slower to never - defaulting. There's a limit how far one economy can grow and for China it's already begun to slow. These types of loans are a symptom of that.

joelx 7y ago
I think the parent and grandparent comments miss the point of the article. This is basically a return to the barter system because the Chinese monetary system is not able to meet businesses needs. This should be a giant red flag to Chinese leaders.
- krageon 7y ago
  Can you explain to me (and perhaps people like me) exactly what the problem with that is? Goods are being exchanged, so it is fine - but I don't have a huge background in financial systems. I would appreciate a different point of view on that.
  - joelx 7y ago
    "In a barter exchange one good is traded directly for another. This form of exchange requires a double coincidence of wants, meaning that each trader has what the other trader wants and wants what the other has. Without a double coincidence of wants the exchange process can become exceedingly complex, requiring a great deal of resources to complete transactions, resources that cannot be used for production. In fact, inefficient barter trading is the primary reason that money was invented." - good explanation from AmosWeb
- analognoise 7y ago
  ...but they love Red flags?
- xster 7y ago
  That's almost like saying asset swaps and mortgage backed securities and all non-cash financial transactions are returns to a barter system.
sschueller 7y ago
Didn't you just describe student loan or credit card dept? Those depend on the economy growing so people can pay them back later. If the economy stops growing and people loose they jobs they will start to default on those loans.
- mschuster91 7y ago
  Student loans in the US are bankruptcy-exempt.