U.S. debt is losing its appeal in China

U.S. debt is losing its appeal in China

www.iht.com

HONG KONG: China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home - a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy.

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Very interesting article from the International Harold Tribune. Back in 2006, when I was regularly attacked here on ATS for supporting predictions that the US economy would sooner or later collapse, I already stated that Americans are only able to live their luxurious lives because they have China.

America has been living on borrowed money for a long time, but the last years, it has greatly worsened. I've always said that China is one of the countries that can make or break the US. No other country has the capability or desire to buy so buy so many t-bonds, which used to total over one trillion. They have already begun selling and no other countries are interested in buying such amounts.

The US is now doing exactly the same as the central bank of Zimbabwe: printing extreme amounts of Dollar notes. Although they are trying to hide inflation, e.g. by stopping to publish M3 money supply data, sooner or later hyper inflation will appear.

The world is losing its trust in the America, and therefore they are losing trust in the Dollar. If America cant borrow money anymore, it has one alternative left: to print money like Zimbabwe, resulting in hyperinflation, the collapse of the Dollar and the official bankruptcy of the US.

www.iht.com
(visit the link for the full news article)

I doubt the US will go bankrupt but the devaluation of the USD is no longer a matter of if but when. In the long term this could actually be a good thing. US corperations need to move jobs back to America so the consumers can buy the products they make. There is no point making something cheap if the workers are paid so little (or have no job) they can't buy the items. Chinese aren't buying many of the items they make, so the system that was setup was never that stable long term. There is a small chance America won't be able to recover and other nations will fill both the production and consumer voids eventually, including China if the companies there start paying workers enough to afford the products they make.

The situation reminds me of a old dos game called crisis at the kremlin. You had to manage the economy so you didn't go bankrupt. One way I always tried was cutting back military but if you did it too much the KGB would kill you. A clear area the US could cut back on is their military spending (about 600 billion a year and 50% of all military spending in the world) and maybe the reason no one does this is because they would catch a bullet with the back of their head if they tried it.

[edit on 11-1-2009 by Jacob08]

I was watching a documentary on this and some guy was talking about how the USA used to be a country that invested it's money around the world, but has now turned into a country that relies heavily on debt. I'm sure the USA will be fine in the future as long as they change their policies to something more sustainable in the long term.

Also, as far a military spending goes, I don't think the USA actually spends that much more than other countries as a percent of GDP, I think it's something like 4%. Don't forget that most of this money goes back into the economy and provides jobs for millions of people.

Originally posted by CthulwhoAlso, as far a military spending goes, I don't think the USA actually spends that much more than other countries as a percent of GDP, I think it's something like 4%. Don't forget that most of this money goes back into the economy and provides jobs for millions of people.

GDP isn't government revenue only what you tax from it is. When you are in recession you want to cut taxes or at least not raise them. So you need to cut your budget and of all the areas there are to target military is one of the best. Sure it's bad cutting back on personal but cutting back on $200 million stealth fighters and other high tech, high cost programs and such would be a good idea. Anyway 4% is rather high, France spends the highest percentage of other major western powers and it spends 2.6%. Plus the 4% of GDP number doesn't take into account many DoD funding programs and the real number is about 50% more then that. There is also the invasions of Iraq and Afganistan which are funded by supplementary bills outside the federal budget and thus also not included in the 4% number.

www.cia.gov...

Oh and in case your wondering why I think they should be trying to cut the budget where possible. Trillion dollar budget deficits are not sustainable, even if you can borrow money for it and it looks like countries are getting less and less willing to loan the US cash. Printing money to pay for trillion dollar deficits would be disastrous.


[edit on 11-1-2009 by Jacob08]

at this point in time the only thing you can do is get your own house in order. The US is suffering from the exact same thing that every other super-power in history has, to big and to overextended to sustain itself. Couple that with the classic blunder of using a fiat currency, and we have ourselves a major problem.
you would think that these "brilliant minds" we hire to represent us would have opened a history book by now. NEVER has a fiat currency succeeded, ever. NEVER has a people been able to sustain foreign wars (or conquests) financially. you cant be top dog forever, Just ask the mayans,egyptians, romans, all the chinese dynasties, USSR, british empire, mike tyson, general motors, brittany spears... lol