The Austerity games begin...coming soon to America...

[Makalakumu]

No they don't. China has bought bonds equal to 9% of our debt. China cannot demand payment until maturity date on those. Many of those bonds also have interest rates lower than the rate of inflation, meaning in essense the Chinese are paying us to purchase those bonds. Factes matter.

Since all money is created from debt and China owns our debt, they own our money. Anyone who buys bonds, owns our debt, our money. That's why bond sales have a direct impact on the strength of a currency.

The imbalence you note is driving people away from subsidizing our debt. This is why the Federal Reserve has to directly purchase it now with what they call quantitative easing. The danger in this is that the Fed doesn't have real assets to back up the bond sales, not like China. The Fed is simply creating the money to buy the bonds.

The end result of this...well, let's just say it's musical chairs and most of the chairs have been removed. Keep playing the music and pretend nothing is happening!

 

[James Kovacich]

Since all money is created from debt and China owns our debt, they own our money. Anyone who buys bonds, owns our debt, our money. That's why bond sales have a direct impact on the strength of a currency.

The imbalence you note is driving people away from subsidizing our debt. This is why the Federal Reserve has to directly purchase it now with what they call quantitative easing. The danger in this is that the Fed doesn't have real assets to back up the bond sales, not like China. The Fed is simply creating the money to buy the bonds.

The end result of this...well, let's just say it's musical chairs and most of the chairs have been removed. Keep playing the music and pretend nothing is happening!

That analagy is rationalized in your eyes. But the reality is this is "Americas way" for roughly 40 years now. We've had good times and bad times and we always come out on top. That's what Americans do!



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[WC_lun]

Since all money is created from debt and China owns our debt, they own our money. Anyone who buys bonds, owns our debt, our money. That's why bond sales have a direct impact on the strength of a currency.

The imbalence you note is driving people away from subsidizing our debt. This is why the Federal Reserve has to directly purchase it now with what they call quantitative easing. The danger in this is that the Fed doesn't have real assets to back up the bond sales, not like China. The Fed is simply creating the money to buy the bonds.

The end result of this...well, let's just say it's musical chairs and most of the chairs have been removed. Keep playing the music and pretend nothing is happening!

Again, China owns only 9% of that debt through bonds. Others are buying American bonds other than the government. That is because despite the recent downgrade, they are still seen as solid and not very likely to default. Some mutual fund companies actually invest in them as bedrock for thier funds.

This is an issue, but not nearly the issue that some are making it to be. Definitley no fact at all that China owns America...unless my math is wrong and 9% is a majority.

 

[Makalakumu]

Again, China owns only 9% of that debt through bonds. Others are buying American bonds other than the government. That is because despite the recent downgrade, they are still seen as solid and not very likely to default. Some mutual fund companies actually invest in them as bedrock for thier funds.

This is an issue, but not nearly the issue that some are making it to be. Definitley no fact at all that China owns America...unless my math is wrong and 9% is a majority.

It's a huge problem if the US defaults on it's debt. China will lose that investment and all others will lose, including the mutual funds that invest in our returement, pensions, and "savings" plans. China is over exposed to US risk and they know it, which is why they have pretty much ended buying US bonds as part of their fiscal policy.

So, yes, I agree with you, the China Owns Us sentiment is probably overblown, but it does own (a portion) of our money and is exposed to the risk of poor financial decisions here.

My guess is that China would weather a US default better than others. Pensioners, people on social security, anyone with a 401k is going to bear the brunt of the losses. Thus, it might be that the sentiment itself is a red herring to distract from the overall mess.

All of this leads back to austerity. This is the governments word for "the **** is hitting the fans" and they need to stop spending. The problem is that so many people are dependent on government now that any group that faces a cut will mobilize politically and overturn it. For example, as much as i'd like to change foreign policy, it's not going to happen, because the MIC can beat the Fear Drums and keep the money spigot turned on. Other groups will claim that it's all "for the children".

The end result will be a default and the crash of the dollar. Other countries know this and are fleeing it. The Fed had two rounds of quantitative easing to buy bonds and keep the price up and it didn't work. Now, we have QE3, in which the fed will buy US bonds at the rate of at least 40 billion per month in perpetuity until the problem is solved...or the wheels come off.

The Fiscal Cliff? The explanation is a red herring, but there is a cliff ahead. It has to do with 40 years of terrible money policy that is essentially non-partisan, or I should say that the both bought and paid for parties "supported" it.

Good thing we have Prepper Threads on a self Defense board...

 

[WC_lun]

How do you get the idea that the US is near default? We aren't. Yes, we are running a deficet. Yes, it needs to be addressed, but not with the severety that many political pundits are waxing on about. It is actually normal and good economic policy for the government to run a defecit while in an economic downturn, as government spending is used to help the economy. Though I will admit, much of the defecit is not used in that manner. So yeah, we are running a defecit and we need to watch the spending much closer, but we are no where near the point of defaulting as a nation, unless congress decides to play more games with the economy.

 

[arnisador]

How do you get the idea that the US is near default? We aren't.

Nowhere near--which is why people keep buying our bonds. This isn't Argentina.

 

[Makalakumu]

You haven't paying attention. The Fed is buying our bonds in perpetuity.

 

[Makalakumu]

This doesn't help.

How do you get the idea that the US is near default? We aren't. Yes, we are running a deficet. Yes, it needs to be addressed, but not with the severety that many political pundits are waxing on about. It is actually normal and good economic policy for the government to run a defecit while in an economic downturn, as government spending is used to help the economy. Though I will admit, much of the defecit is not used in that manner. So yeah, we are running a defecit and we need to watch the spending much closer, but we are no where near the point of defaulting as a nation, unless congress decides to play more games with the economy.

Seriously, I don't know. I'm not an economist. I know enough to know that you have basically described Keynesinism and that there are other schools of economic thought, particularly the Austrian. I also know enough to see historical patterns...and they don't look good. That said, I hope the US is somehow able to prop the currency up. Any logical and rational alternative to a flawed policy dies when the currency dies. We have history to back that up as well. Godwin Alert!