China Losing Taste For Debt from U.S.

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Lemonyellowschwin's picture
Lemonyellowschwin
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China Losing Taste For Debt from U.S.

http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?pagewanted=1&_r=1

This is one of the things Chris has been warning about.  If China is unable to support our debt, who can?  Seems to me that the same reasoning for why China cannot continue to buy our debt at necessary levels applies equally to Japan and others.  No?  And it's not so much an unwillingness to buy our debt as an inability to do so.

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DavidLachman
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Re: China Losing Taste For Debt from U.S.

I guess that leaves the FED to buy the debt.

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Navarone
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Re: China Losing Taste For Debt from U.S.

What does that even look like (Fed buying debt) ?  How does that work?

Lemonyellowschwin's picture
Lemonyellowschwin
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Re: China Losing Taste For Debt from U.S.

It looks like Ben Bernanke with his hand on a mouse.  And it works by him clicking on the mouse with his finger.

Seriously, the Fed buys government bonds using money created from . . . t-h-i-n a-i-r.  It's called debt monetization.

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jmar8692
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Re: China Losing Taste For Debt from U.S.
Lemonyellowschwin wrote:

It looks like Ben Bernanke with his hand on a mouse.  And it works by him clicking on the mouse with his finger.

Seriously, the Fed buys government bonds using money created from . . . t-h-i-n a-i-r.  It's called debt monetization.

Smile

Very true, but in these days of modern financial policies, the prefered name for it would be rather "the Quantitative Easing", wouldn't it?

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jrf29
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Re: China Losing Taste For Debt from U.S.
Navarone wrote:

What does that even look like (Fed buying debt) ?  How does that work?

It works by the Federal Reserve printing new money to buy bonds from the U.S. Treasury.  Essentially, you can think of it as the government printing money to buy its own bonds.  (Although, interestingly, since the federal reserve system is a quasi-governmental body supported by private member banks, the government doesn't even get the luxury of making interest payments to itself.)

What does it look like?  It looks like inflation.  The government printing money to buy their own bonds is, in a roundabout way, the same as simply printing money to pay their bills.

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