4 ms·

Yeah I don't think it would make much of a difference, with or without the Fed. They'd really have to try to spend the dollars & not just stick that money back

by jaekwon 13y ago

Yeah I don't think it would make much of a difference, with or without the Fed. They'd really have to try to spend the dollars & not just stick that money back into a bank, and the effects of that would be slow and noticeable in time for the US to react with some policy.

wintersFright 13y ago
umm, no. It would be the end of the USD as you know it, instant hyperinflation and empty shelves in your local supermarket. The point of dumping bonds is that they are saying they are worthless, they aren't trying to extract value from them by spending them somewhere else. That would render other Central Bank dollar denominated reserve assets worthless too. World trade, denominated in USD, would freeze, along with any American's relying on imported oil to warm their houses through the polar vortex. So no, it wouldn't be business as usual...if this were a real story.
- camus2 13y ago
  It would mean war against China.Plain and Simple.
  - jaekwon 13y ago
    Lol. The US & China are like conjoined twins.
    - 1stop 13y ago
      Germany and England were pretty cosy too at a point in time.
    - alan_cx 13y ago
      Yeah, until China hypothetically dumps its bonds, which is what is being discussed. Good analogy though, because separating conjoined twins in a manner analogous to dumping all its bonds would kill both. The US economy would be in ruins, and the US would reply the only way it knows how, war. I suppose war is as much an economic tool as anything else. But there is another reason why China could never dump its bonds, it would destroy its biggest market, the US. Capitalism, the biggest force for peace we have....... (If reading that last bit made you feel nauseous, imagine how I felt typing it. Im trying to kid myself it's ironic, but its not working.)
- jaekwon 13y ago
  Yeah, that's what I used to think. I think that line of speculation is wrong though. Why exactly would world trade freeze? Just because China says that they don't want to value their bond holdings anymore doesn't mean that others will follow suit.
- bsaul 13y ago
  But china isn't the only one to use usd. Them saying "i don't give usd any value" doesn't means it's going to be true. At the minimum, USA will still use that currency no matter what, along with every US companies. And since The US haven't defaulted yet on their debt, US bonds will still have at least some justifiable value.
  - wintersFright 13y ago
    If China dumped bonds, why would anyone buy debt from the USG when they can get it cheap on the open market that has just had 1 trillion dumped in it. The fed steps in, mops up all excess demand so Uncle Sam can keep on spending beyond its tax revenue. Very quickly, no one is going to accept USD in trade as the value plummets. The USD being world reserve currency has been printed far beyond the needs for internal domestic trade. The US had to do this to lubricate world trade, however when the music stops all those dollars held in foreign banks will try and make their way home in order to obtain some value. A flood of dollars will then start bidding for goods and services from the US economy. Instant hyperinflation. The US haven't defaulted on their debt because the roll over their debt with more USD.
    - bsaul 13y ago
      My point was exactly what your last sentence said : they are already printing so much money and it doesn't provide inflation. Your point i guess is that china has 1 trillion in USD, which is such a huge amount that emitting this on the market will create inflation. I just checked the numbers, and in 2011 the second quantitative easing (aka "printing money") was 600 billions, and the third is 40 billions every month. And it doesn't have any impact on inflation (which remains a bit of a mystery to me, unless this money is instantly used by the banks just to balance banks internal debts and taken out of the economy).
      - fennecfoxen 13y ago
        Yeah, the Fed buys crazy lots of bonds, and it's pretty impressive that it hasn't caused inflation yet. A big bond dump by China may be enough to actually trigger a substantial piece of inflation - heck, maybe you'd see an instant jump in prices of a few percent overnight, and the US would have to make some painful choices about spending and debt... But it wouldn't in and of itself cause catastrophic hyperinflation. Not on an ongoing basis, anyway. Continuing inflation requires continuing increases in the monetary base (or monetary velocity).

by jaekwon 13y ago

wintersFright 13y ago

umm, no. It would be the end of the USD as you know it, instant hyperinflation and empty shelves in your local supermarket. The point of dumping bonds is that they are saying they are worthless, they aren't trying to extract value from them by spending them somewhere else. That would render other Central Bank dollar denominated reserve assets worthless too. World trade, denominated in USD, would freeze, along with any American's relying on imported oil to warm their houses through the polar vortex. So no, it wouldn't be business as usual...if this were a real story.

camus2 13y ago
It would mean war against China.Plain and Simple.
- jaekwon 13y ago
  Lol. The US & China are like conjoined twins.
  - 1stop 13y ago
    Germany and England were pretty cosy too at a point in time.
  - alan_cx 13y ago
    Yeah, until China hypothetically dumps its bonds, which is what is being discussed. Good analogy though, because separating conjoined twins in a manner analogous to dumping all its bonds would kill both. The US economy would be in ruins, and the US would reply the only way it knows how, war. I suppose war is as much an economic tool as anything else. But there is another reason why China could never dump its bonds, it would destroy its biggest market, the US. Capitalism, the biggest force for peace we have....... (If reading that last bit made you feel nauseous, imagine how I felt typing it. Im trying to kid myself it's ironic, but its not working.)
jaekwon 13y ago
Yeah, that's what I used to think. I think that line of speculation is wrong though. Why exactly would world trade freeze? Just because China says that they don't want to value their bond holdings anymore doesn't mean that others will follow suit.
bsaul 13y ago
But china isn't the only one to use usd. Them saying "i don't give usd any value" doesn't means it's going to be true. At the minimum, USA will still use that currency no matter what, along with every US companies. And since The US haven't defaulted yet on their debt, US bonds will still have at least some justifiable value.
- wintersFright 13y ago
  If China dumped bonds, why would anyone buy debt from the USG when they can get it cheap on the open market that has just had 1 trillion dumped in it. The fed steps in, mops up all excess demand so Uncle Sam can keep on spending beyond its tax revenue. Very quickly, no one is going to accept USD in trade as the value plummets. The USD being world reserve currency has been printed far beyond the needs for internal domestic trade. The US had to do this to lubricate world trade, however when the music stops all those dollars held in foreign banks will try and make their way home in order to obtain some value. A flood of dollars will then start bidding for goods and services from the US economy. Instant hyperinflation. The US haven't defaulted on their debt because the roll over their debt with more USD.
  - bsaul 13y ago
    My point was exactly what your last sentence said : they are already printing so much money and it doesn't provide inflation. Your point i guess is that china has 1 trillion in USD, which is such a huge amount that emitting this on the market will create inflation. I just checked the numbers, and in 2011 the second quantitative easing (aka "printing money") was 600 billions, and the third is 40 billions every month. And it doesn't have any impact on inflation (which remains a bit of a mystery to me, unless this money is instantly used by the banks just to balance banks internal debts and taken out of the economy).
    - fennecfoxen 13y ago
      Yeah, the Fed buys crazy lots of bonds, and it's pretty impressive that it hasn't caused inflation yet. A big bond dump by China may be enough to actually trigger a substantial piece of inflation - heck, maybe you'd see an instant jump in prices of a few percent overnight, and the US would have to make some painful choices about spending and debt... But it wouldn't in and of itself cause catastrophic hyperinflation. Not on an ongoing basis, anyway. Continuing inflation requires continuing increases in the monetary base (or monetary velocity).