Discussion in 'China' started by ajtr, Mar 3, 2010.
Debt’s life, debt’s what all the people say: Big squeeze coming from China?
could USA refuse to honor the debt and make Chinese holdings worthless ??as there is no market for them currently, what can China do to make USA payup??(not much) Since US govt is the only buyer left for this worthless junk they will decide where,when and how much and what price they will give for it; so USA still has the upperhand.
That would have the same effect. The US would lose their financial credibility instantly and their economy will tank anyways. Japan, Taiwan, and SK also hold a huge portion of American debt.
USA current financial situation has already lost alot of credibility any reduction in USA's credit rating and things like this may become possible,in history debt based economies and trade always lead to defaults.
Suffering the financial lost is a problem of your ability. Denial of your debt is a problem of your personality. If US gov dishonor its debt, the whole world will question its credibility. Meanwhile the credibility of US dollar will be impacted as well since you can just issue a new version of dollar to replace it. So, the possible scenario would be: every individual, banker, business man and gov would sent their US dollar deposit back to US asking for some commodities: oil, machine, etc. Meanwhile all US importer will be forced to pay their purchase with foreign currency. This means that US has to take back more than 30 trillions US in a short period. Do you think US can live with that?
By the way, india is not that important.
Very simply put how does a nation not honoring it's debt obligations of trillions of dollars harm the nation? (it dosen't it benefits the nation)
Ok simply put: 1. you will never expect to borrow money from foreigners any more. Even if you are lucky enough to find a banker, the interest will be rocket high since your creditability is negative.
2. since you credibility is negative, another kind of bond you issued--your currency will be worthless, from then on you have to pay every importation deal with gold, foreign currency or even commodity.
3. Since your currency become worthless, all the money your gov or domestic banks lend to other countries or foreign companies can be paid back immediately, they may clean their millions dollars debt with several erupe dollar.
4. Since your currency value is going down so quickly that your exportation will die in weeks unless you would accept your own worthless currency from your foreign customers.
No smoking many of these things have already have happened the government is taking over many banking and financial institutions, the risk to the currency is short term which would be absorbed and recovered, as social cost escalate health care,medicare,medicaid etc when the boomers retire the revenue from their incomes will also be gone and an added expense will increase, with no new industries booming the picture looks grim for this decade, in all this ,does any debt holding nation seriously think they will be paid for their debt, currently interest rates are .01% and US treasury yield is almost zero. US is now looking at military solutions for their problems so I see very few nations making anything on their US debt holdings for a long time and even fewer recovering their IOU's from USA.
Of course they can't. They sell their USD FOREX they not only devalue their own holdings by dragging the dollar down, they also increase inflation by not having as much FOREX to back the RMB. They would have to free-float the fiat currency and destroy their export model. China won't be ready to break from the USD until consumer spending reaches the 60% mark.
Is it time to ding Beijing?
Agree with u and in fact China is busy hunting for precurement of foreign resources/mines globally with the huge FOREX and is making a headway in regionalizing RMB (firstly within Aisa)
Above all truthfully China must boost its domestic consumption. Most workers are living on wages <2000RMB/month (6.82/$1) on which the pyramid can't stand long.
Meantime don't forget Japan, Taiwan and UK ... are also in the ranks of top US trash bonds holders
China needs to diversify their US debt holding with the least collateral damage US bonds are yielding less than 2% and US treasury notes are yielding less than 1% if the Chinese had it in cash and invested it back into their own economy which has been growing at a double digit rate the return on that investment would be many fold than what they are getting from the worthless bonds and it would help the own Chinese domestic economy.
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