US threatens default to wipeout debt owed to China

thakur_ritesh

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the motto seems, "hum to dubenge sanam, tujhe bhi le dubenge", and then it wont just be a US thing, EU, japan are ripe to explode, and many more ready to join the list and pakistanis will be more than happy for being let off the hook because if the US and EU can do it, so will they.

boy, if the 2007 crisis was a trailer, the movie is yet to be released and is being marketed well, as srk would say, "picture abhi baaki hai!".

and what happens to the dream of the BRICS, it seems, "khab, khab hi reh gaye!".

this seems more a case of when, lets wait and watch ..........
 
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Is a "technical" default on U.S. government debt a good idea? | Ask...

Is a "technical" default on U.S. government debt a good idea?

An increasing number of Republicans believe that a brief, "technical" default on U.S. government debt is an acceptable way to force the Obama administration to agree to deep federal spending cuts. These Republicans believe a failure to increase the debt limit by Aug. 2 would not trigger an immediate economic catastrophe.
 
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Credit Market Nightmare: The US Default Idea Is Going Mainstream

Credit Market Nightmare: The US Default Idea Is Going Mainstream


It gets really hard to play chicken when the other side isn't afraid of crashing.
Heretofore the debt ceiling game has been characterized as exactly that -- a game of chicken -- with the presumption that one side would veer off the road at the last second.

But what if the GOP really doesn't worry about crashing at all, and in fact it thinks crashing might be good?
We've been saying for a while how stunned we were that the idea of a technical default was gaining currency among mainstream thinkers, and now Reuters confirms it. Nobody is particularly concerned about a default. The deadlines are no big deal. As long as it's short, they think, it wouldn't have calamitous implications, a notion hotly disputed by just about every financial institution (including small banks).

Particularly influential on the GOP was this OpEd in the Journal by Stan Druckenmiller (the former hedge funder) calling for the default outcome, or at least saying it wasn't so bad.Hey, if a financial guy says it, it must be true!
 
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Secret China war plan: trillions in U.S. debt Paul B. Farrell - MarketWatch

Secret China war plan: trillions in U.S. debt
Commentary: Today an economic battle; later, combat


SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, Americans love war. Yes, wars cost money. And pile on debt, new taxes. Still, we love war. Why else let the military budget burn 48% of your tax dollars? But why is it "off the table" when the GOP talks "deficit cuts"?

Why? We love war. We'd rather attack with a macho battle cry like "damn the torpedoes, full speed ahead!" than listen to a warning from historian Kevin Phillips: "Most great nations, at the peak of their economic power, become arrogant, wage great world wars at great cost, wasting vast resources, taking on huge debt, ultimately burning themselves out."


Which dominates our Congressional deficit hawks? Which is China's military strategy?

Admit it, we love war. Marine Corps posters grabbed me as a kid. Trained me as an aviation weapons system tech. So I couldn't resist Erik Sofge's edgy thriller, "China's Secret War Plan," about a China-U.S. war. Like a fast-paced Tom Clancy thriller. In Popular Mechanics: One of my favorites as a kid working in a small-town magazine store.

Yes, war's popular. Locked in our DNA long ago. Sofge's thriller was based on war games played by Pentagon generals and Rand Corporation strategists.

Americans love war. Can't resist videogames, war movies: "Hunt for Red October," "Platoon," "Dirty Dozen," "Star Wars," "Terminator." War turns us on, a testosterone virus in our brains. Our love blinds us to costs, collateral damage, unintended consequences, new debt for our kids. Besides, they'll grow up loving war. DNA is passed on. Can't resist.

That hot button was pushed recently with "secret" photos of China's new stealth bomber exposed during the state visit of China's President Hu Jintao. Sofge's thriller begins:

Aug. 9, 2015, 0400. China's war for "Taiwan starts in the early morning. There are no naval bombardments or waves of bombers "¦ 1,200 cruise and ballistic missiles rise from heavy vehicles on the Chinese mainland ... Taiwan's modest missile defense network. a scattered deployment of I-Hawk and Patriot interceptors, slams into dozens of incoming warheads "¦ a futile gesture. The mass raid overwhelms the defenses as hundreds of Chinese warheads blast the island's military bases and airports."

Do taxpayers have a choice? Plan for big wars, get bigger deficits?

The GOP wants to cut America's massive debt. But "off-the-charts" military spending is "off the table." Back in the '40s, WWII consumed 57% of our GDP. Today, war eats up about half America's budget.

We're sinking under Iraq war debt. Nobel economist Joseph Stiglitz estimates Iraq at $3 trillion, with $2 trillion for future costs, like VA medical. The Afghan war, maybe another $3 trillion. Plus endless terrorist threats. Future wars are "planned" years, even decades in advance, strategies based on Pentagon-Rand war games.

America talks peace. But deep inside our collective brain is a dark monster: We're little kids who love playing war. Age 10 I had a collection of model fighter planes, played air wars. Age 15, owned three guns for hunting. Then the Corps. Like a moth to the flames, we cannot resist our destiny in war. Sofge brings alive the action in our brains:

"Taiwan's air force is grounded "¦ Taiwanese troops mobilize in downtown Taipei and take up positions on the beaches facing China, just 100 miles to the west. But they know what the world knows: This is no longer Taiwan's fight. This is a battle between an old superpower and a new one." Games or reality, it's all in our heads.

Or is this how WWIII starts? Between an aging America that loves war, won't surrender without a fight, and the world's rapidly emerging superpower, predicted to have a population one billion larger than America's by 2050. Plus an economy 40% of the world's GDP, dwarfing America's GDP predicted to fall to just 14%. Yes, China's the emerging new superpower, a crafty enemy laughing as we waste our economic resources.

Listen as Sofge quotes retired Rear Adm. Eric McVadon, former naval attaché in Beijing: "They are obsessed with Taiwan. On some given day, it's entirely possible for people to be standing around a table in the Politburo in Beijing, and someone gets the ball rolling. And when it stops, we're at war."
 

Tianshan

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Or is this how WWIII starts? Between an aging America that loves war, won't surrender without a fight, and the world's rapidly emerging superpower, predicted to have a population one billion larger than America's by 2050. Plus an economy 40% of the world's GDP, dwarfing America's GDP predicted to fall to just 14%. Yes, China's the emerging new superpower, a crafty enemy laughing as we waste our economic resources.
40% of world GDP? i think they are too excited. and 2050 is very very far away.
 

kickok1975

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America is already defaulting its own people. Government is talking about seriously cut medicare and medicade, delay the eligibility of Social Security benefit to 68~70 years old.
 
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America is already defaulting its own people. Government is talking about seriously cut medicare and medicade, delay the eligibility of Social Security benefit to 68~70 years old.
This is true and this is not the time to sour relations with China. USA should have some gratitude that China has bought this junk debt and kept US afloat the last few years.
 

kickok1975

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This is true and this is not the time to sour relations with China. USA should have some gratitude that China has bought this junk debt and kept US afloat the last few years.
It's understandable US has mix feeling toward China. However, normal American don't understand China is actually a victim by lending so much money to US but end up with decreased value thanks to Fed's relentless printing of dollars. At the end of the day, China only get worthless paper and blame
 

niharjhatn

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America is already defaulting its own people. Government is talking about seriously cut medicare and medicade, delay the eligibility of Social Security benefit to 68~70 years old.
The US has always had a terrible health care system... one of the industries where a universal policy is the best one.

I met an American and he confessed to me that he has never seen a country take less care of its citizens than in the US. He had lost his job, and was forced to take an overseas job in order to try and get medical insurance.
 

kickok1975

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The US has always had a terrible health care system... one of the industries where a universal policy is the best one.

I met an American and he confessed to me that he has never seen a country take less care of its citizens than in the US. He had lost his job, and was forced to take an overseas job in order to try and get medical insurance.
However, if you are fat, poor and lazy, you can get all the benefit while middle class households are struggling.
 
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It's understandable US has mix feeling toward China. However, normal American don't understand China is actually a victim by lending so much money to US but end up with decreased value thanks to Fed's relentless printing of dollars. At the end of the day, China only get worthless paper and blame
China lost in 2 ways by buying US debt:

They lost by buying an asset which gave 1% interest while Chinese economy grew at 10%. Chinese lost 9% in holding US treasury paper. This number compounded over many years is a significant and high number.

China lost by buying an asset that has become worthless with no market for it and US govt unable to buy.
 

sanjay

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China could not have grown so rapidly without having a cost advantage in the US market obtained through currency manipulation. It is the purchase of US debt which has underwritten the cost differential between Chinese and US production costs.

It's no different than vendor financing - you lend money to your customer, so that he can buy more from you.
 
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China could not have grown so rapidly without having a cost advantage in the US market obtained through currency manipulation. It is the purchase of US debt which has underwritten the cost differential between Chinese and US production costs.

It's no different than vendor financing - you lend money to your customer, so that he can buy more from you.
Chinese growth came after USA gave them MFN- most favored nation trading status.
 

sanjay

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It's far more than MFN - most nations have been given MFN by the USA.

The fact is that the Chinese currency is very undervalued compared to the US currency, and therefore China is able to produce at far lower prices, just like Japan and South Korea have.

That currency can only be valued so low because of massive Chinese purchases of US debt to prop up the value of the dollar. If the Chinese stopped purchasing US debt, then the US dollar would plunge, and Chinese exporters would be at a tremendous advantage cost-wise.

Likewise, India too is buying large amounts of US debt to similarly keep its currency low compared to the dollar.
 
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Likewise, India too is buying large amounts of US debt to similarly keep its currency low compared to the dollar.
This may not be the best policy for India, better to buy gold with any surplus dollars.
 

sanjay

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Naturally, now that US dollar is looking increasingly insecure and likely to plunge due to irresponsible US govt spending policies, BRIC countries and others are loudly calling for an alternative currency to the dollar, perhaps as a weighted basket of currencies of which the dollar is only one component.

If the US dollar plunges, then India's outsourcing businesses will be sunk by a tsunami.
 
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Chinese Holdings of Treasuries Climbed in April as Fed Purchases Near End - Bloomberg

Chinese Holdings of Treasuries Climbed in April as Fed Purchases Near End

China, the largest foreign owner of U.S. government debt, added to its holdings for the first time in six months in April as economic data weakened and the Federal Reserve signaled no extension of its $600 billion purchase plan.

The Communist nation's holdings of longer-term notes and bonds rose 0.8 percent to a record $1.149 trillion in April, surpassing the $1.145 trillion held in December, U.S. Treasury data released yesterday show. Holdings of short-term bills maturing in one year or less declined by 32 percent to $3.9 billion, the least since April 2004, the data show.

Chinese officials, as well as those in Germany and Brazil had been critical of the Fed's asset purchase plan when it was first announced in November, said the proposal would be inflationary and could hurt the value of dollar-denominated assets. The Fed became the largest owner of Treasuries through what has become known as its policy of quantitative easing, in which bonds were bought to add cash into the economy and reduce the risk of deflation. The purchases end this month.

"One might draw a loose conclusion that they stepped aside at the onset of QE and during the period of time when the economy seemed to be gaining better footing and there were some inflationary concerns," said Chris Ahrens, head interest-rate strategist at UBS AG in Stamford, Connecticut, one of the 20 primary dealers that trade with the Fed.

Global demand for U.S. stocks, bonds and other financial assets rose in April from a month earlier, led by longer- maturity securities, the Treasury Department reported. Net buying of long-term equities, notes and bonds totaled $30.6 billion compared with net buying of $24 billion in March.
'Foreign Intermediaries'

Foreign holdings of Treasuries rose for a 24th month to $4.49 trillion. Japan, the second largest foreign owner, reduced its holdings by 0.9 percent to $906.9 billion in the month after suffering its largest earthquake on record and a tsunami, leading to meltdowns at a nuclear power plant.

Even with the increase, the data "underestimates what China's buying," said Scott Sherman, an interest-rate strategist at Credit Suisse Group AG in New York, a primary dealer. "China deals through foreign intermediaries" leading to initial tallies counting their purchases as belonging to other holders, such as the U.K.
Holdings of Treasuries in the U.K. rose 2.4 percent to $333 billion in April, and have increased 23 percent for the year, the data show.

The Treasury's initial reports on international purchases are based on the location where the transaction occurs, while subsequent revisions are based on location of the beneficial owner.
 

amoy

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China continues to cut US debt holdings
China, the biggest buyer of US treasury bonds, trimmed its holdings for a fourth straight month in February to $1.15 trillion, according to data released by the US Treasury Department, while total foreign holdings increased by 0.5 percent to $4.47 trillion over the same period.
China indicated earlier in April that it was ready to buy more debt from the eurozone's weaker states, in a move to help stabilize the bloc's fragile finances and protect its business interests.

After investing billions of euros in Portuguese and Greek bonds, China is considering buying more European bonds to diversity its foreign reserves.

The Ministry of Foreign Affairs said earlier in Beijing that the country was also in talks with Spain.

Although the government is well aware of the necessity to diversify and reduce its risks, other debt-purchase options cannot match the strength and security of US debt in the short term, economists said.

"In the short term, US treasury debt remains a sound investment option for China, especially when Europe is still weighed down by sovereign-debt problems," said Chen Daofu, policy research chief of the Financial Research Institute of the State Council's Development Research Center.
 
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Why is China buying more US treasury notes when US govt is not buying them??European debt is worst than US debt countries like Greece debt's are 13x GDP.
 

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