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Interesting article. Particularly this: "The way this entire arrangement evolved had the structure of a Ponzi scheme. China and other countries invested money
by grej 13y ago
Interesting article. Particularly this:
"The way this entire arrangement evolved had the structure of a Ponzi scheme. China and other countries invested money in various kinds of American financial securities including government bonds. This has helped keep interest rates low in the US. This helped Americans consume more. The money found its way back into China (like a return on a Ponzi scheme), and was invested again in various kinds of American financial securities, helping keep interest rates low and the consumption going.
Foreign countries have an incentive in keeping this Ponzi scheme going."
TLDR: When nearly all parties have a vested interest in continuing to kick the can, the can will likely be kicked for a very long time.
- Fuzzwah 13y agoEspecially when the can kickers are being prodded along by the biggest armed force in the world.
- anigbrowl 13y agoBut it's wrong. It's a good description of a how a Ponzi scheme works, but in a Ponzi scheme that's all that happens - there's no actual economic activity taking place. The US, by contrast, has a very large and productive economy. Also, bear in mind that the treasury borrows at a fixed interest rate. When you hear of rates going up, that's the rate that will have to be paid on future bond issues. With inflation as low as it is right now, it makes good sense to borrow. In fact, we should be borrowing more, probably much more, and investing it in major infrastructure upgrades that would yield higher economic gains over the lifetime of the bond than the puny rates of interest we pay on current borrowings.