China holding US debt

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plantguy90's picture
plantguy90
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China holding US debt

Reading the spin on Clinton's visit to China, on the surface both sides seem to agree to China holding their US debt.  But does that mean they will continue to buy new debt?  At the same interest rates?  How does that benefit China?  How long are they willing to do this?

strabes's picture
strabes
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Re: China holding US debt

Yes they'll keep buying, for a while longer, not because of clinton, but because they depend on US survival for now...they're a primary exporter nation so they by definition will then have a deficit in the capital account, i.e. buy our treasuries to go along with our attempts to reflate our consumption economy so we can consume more Chinese goods.  Once they realize that game is over (who knows how long that will be...I'm planning on having my assets adjusted appropriately in 6-18 months though it could go longer for 2-5 years) and they let their economy go through the hell of adjusting to a new system, they'll stop trying to hide their head in the sand and they'll stop buying treasuries.  When that happens, US treasury rates shoot through the roof, the economy comes to an absolute halt, the $ dies, and tyranny will be implemented in the US to avoid the anarchy that will result.

 

plantguy90's picture
plantguy90
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Re: China holding US debt

I dont get it, if you know your customer is dead broke, why lend him more real goods when all he will pay you with is bad money?  I think the customer is still somewhat rich, but his liabilities go way beyond his productivity.  So its a losing proposition. 

I just dont see why the creditors will "have to play along for a while longer?"  What benefit is there?  Do they want to buy more time to build their military?  Trade those paper dollars buy gold to create a new currency?  Time is awasting.  Pain now or more pain later...

I am in a similar pickle; during the boom times we allowed a blustering customer to recieve a lot of goods on credit.  (not my call) Now he needs our goods to keep his business alive.  But we sure as heck aren't sending him more goods without getting upfront payment, and even then, we are setting the level of debt paydown vs. new goods.  He doesn't like it, but he has no choice.   We dont like it, but if we dont ship him something; he will fail.

So I believe the debt paydown period is already upon us.

 

 

joe2baba's picture
joe2baba
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Re: China holding US debt

ya kinda answered your own question plant guy.

there is an old axiom in biz, " borrow a little and you have a creditor. borrow a lot and you have a partner" clinton described china as a partner. they are not willing to start a windstorm at the base of a stack of thousand dollar bills hundreds of miles high.

plantguy90's picture
plantguy90
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Re: China holding US debt

Thanks Joe, that's an awesome quote.  Well, we have a debate raging here about our customer pickle.  I am from the camp that says cut and run, the guy is a bum, there is the other argument that if you do that you don't get your money back.  Your really hit it on the nail, the "partner" cannot be trusted, each new transaction requires constant managing to insure against further losses.  Its quite distracting, and I am not convinced the cost is worth the recuperation.

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bearing01
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Re: China holding US debt

I think that if China were to stop lending (more like giving) America its wealth then that would send the US into a large death spiral collapse.  That could be enough to pop the treasury bubble and/or collapse the dollar.  If that were to happen then all China's "skin in the game" would be lost.  China would also suffer a collapse and perhaps a citizen uproar / political instability.  Therefore China will continue to keep the USA on life support until they can prepare themselves to cut us free.  Unless the USA in the mean time brings down the rest of the world enough that they have no choice but to cut us free.

The USA can bring down the rest of the world because we are relying on their wealth & savings to be lent to us so our government can spend it to build bridges we don't need and to digitize medical records - things that should all increase our productivity and ability to become self sufficient.

Meanwhile, we won't be paying back that borrowed wealth anytime soon from wealth we generate (maybe with printed money, but that's not wealth generation).  Therefore, our borrowing policies are realy impoverishing the rest of the world.  They could instead be spending their savings to improve their own economies (maybe purchase some of their own products) but instead they are coerced to lend it to us. 

Woodman's picture
Woodman
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Re: China holding US debt

Since too much borrowing was our folly, China cutting off further lending might be the best thing to happen to the US in the long run.  A bit painful in the short run perhaps, but we need to admit to the diagnosis and take our medicine.  Isn't that what this website is about?  China might benifit too, in reducing their overbuilt production capacity to supply stuff to the US.

strabes's picture
strabes
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Re: China holding US debt

Yes it'll be very painful if they cut us off.  It would probably be catastrophically painful, i.e. the country would devolve into anarchy with our regions separating into autonomous countries as some Russians are predicting, or the national government would turn on us in a massively violent attempt to keep us down and keep us together.  

But it would be catastrophically painful to China as well.  They need to keep the system going as much as possible right now or their billion people would revolt and destroy their national government.  They're buying time to attempt to transition their economy with a soft landing rather than letting it crash and cause revolution.

So what's happening is 2 power-hungry monarchies (the Chinese Communist party and the US executive branch--the most powerful monarchy in the world) are corruptly colluding/cooperating to keep our 2 populations under control rather than let the market and our societies adjust to a freer system with less top-down power.

 

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Thomas Hedin
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Re: China holding US debt

If you watch both videos I think you'll understand why the privately owned central bank in china is increasing it's stake here

 part 1 (watch in full screen HD)

 part 2 (watch in full screen HD)

 

strabes's picture
strabes
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Re: China holding US debt

Awesome videos.  But you realize your life's in danger proposing the end of debt-based money?  Tongue out 

Thomas Hedin's picture
Thomas Hedin
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Re: China holding US debt

Who said I was proposing an end to debt based money?  I'm mearly saying would should introduce a debt free way to pay the interest.  It would be impossible to get rid of debt based money in one full swoop, but if something isn't done, and soon, this system is going to collapse, and it will do so in a manner that none of us can fathom.

strabes's picture
strabes
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Re: China holding US debt

I'm totally with you Thomas...it's going to collapse, which hopefully results in the end of banking cartel, and I hope in the end of debt-based money.   

I was trying to be funny.  I meant that Byron in that video is in danger...any president who competently advocated an end to the banker cartel had a bullet or two put in him.  

Thomas Hedin's picture
Thomas Hedin
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Re: China holding US debt

You're absolutely correct when saying it's going to collapse, but when it does collapse(if we refuse to fix the problems with our monetary system) this will not hurt the big banks just the state level banks.  What happens is after all the foreclosures the big banks will end up owning all the real property(including all the small banks), and how could they get hurt by a collapse when they never even loaned anything in the first place except a promise to pay?

The fact is we need to introduce some debt free, tax free, money into circulation.  If we can get that to happen in one state, I firmly believe that success will breed more success.

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