I have an opinion. I would like yours.
My opinion is focused on the Chinese. They have invested heavily in America. Essentially, they have bought huge amounts of our bonds, and are earning a steady, secure income on the interest paid on the those bonds. If they decide to 'cash in' a significant number of those bonds, America will have to sell new bonds. And a cycle of upward spiraling interest rates will have to be offered. Which will do the job of attracting 'new money.' Which means that that 'new money,' which might have gone into the stock market or venture capital, etc., will mean that business, new and old, will have to pay even higher interests to attract loans. Because the Federal Reserve MUST keep attracting more money, the interest rate on the bonds will go higher than what the market is offering and that's where the upward spiraling comes from.
If the Chinese sit quietly, we're okay. But if they decide that America, living with double digit interest rates (a la the Jimmy Carter era) will still be a good market, they'll dump their bonds, because then they'll have the best of both worlds: a drastically weakened America, either getting weaker or just getting by, as they, the Chinese find new markets for their goods. If the Chinese decide our 200+ year empire has peaked, they'll happily help kick the walls down.
Unfortunately Laztheism offers no financial aid or advice, other than to point you to the Boy Scout motto, "Be Prepared," and opine that it has more to do with life than always carrying a condom with you.
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6 comments:
However, China has a great reason not to do this, that being our response in such a situation - printing tons of money, making their bonds essentially worthless. Losing all that investment capital wouldn't put them in a great situation, either.
I think you err slightly. Not that I'd really know, since I got F's in citizenship in algebra...
Simply printing more money and having it stacked up in warehouses doesn't do the situation any good. If the US used this newly printed money to buy back the Chinese debt, it puts more green backs in the hands of the Chinese and still limits the amount of money available to lend, which then causes the upward spiral of interests rates. And a China flush with greenbacks has a lot of negative downside.
I don't for a second pretend to know how finances work on a global scale, but we've had on depression and I've lived through a number of depressions. The one thing I do know is that I've been painting curbside addresses since 1973 and it's a business which, if you run a tight ship, weathers economic storms. Plus I've been stocking up on Progresso New England Clam Chowder and saltines.
But are the ingredients in that Clam Chowder from China? It may be poisoned.
Perhaps. I'm not a man in favor of Progress, but I do support Progresso.
Typical Laztheist. Offer tons of problems, but give no solutions. -It's what separates you from the Catholics. (That, and the lack of interest in young boys.)
Typical...they have our money and now their trying to poison our kids with lead toys and lunch boxes, and trying to kill our dogs with rat poison in the kibble. Can't please them till they're coming over here and finding nobody left to fight them off.
I say lets take up a collection and buy back the bonds and then cut them off MFN status and not take anymore of their made in China crap!! BOYCOTT!!!!
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