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Sub40APM
6336 Posts
Compare the yield on Greek debt vs the yield on US debt. One country is paying almost 20% for debt maturing in a year and another is paying 4% on 30 year debt. Like someone else here said, America has an employment and tax loop-hope policy problem, not a debt problem. | ||
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Sub40APM
6336 Posts
On July 31 2011 06:15 kwizach wrote: Sure I can deny it's true. Investors will continue to lend money to the US, because they're making a profit by doing so. If interest rates go higher, it means they get paid even more. Everyone knows the US is not going to erase its debt/go into a long-term default. i agree with the general spirit of your post but this part of it is just wrong. If I buy a US treasury, at face value, today with an interest payment of 4% and tomorrow the interest rate goes up to 5% my US treasury is worth less. [Think about it, who would want to pay 100 for something that pays him 4% when they can pay the same 100 and get something that pays 5% with the exact same risk profile.] Nonetheless, foreign investors *cannot* stop buying US treasuries as long as their policies encourage massive trade surpluses against America. Like I said, all world trade has to add up to 0. And when America is - 100 and the rest of the world is +100 the only solution, if the rest of the world wants its trade surplus, is to lend America that 100 no matter what the interest rate is. That is why interest rates in America have been falling despite a rise in both the trade and government deficit over the last 10 years. Countries with trade surpluses vs America dont think in terms of "We will invest into this and make lots of money when they pay interest!" but in terms of "We will invest into this because its the only way we can keep a massive trade surplus against America, keep employment high and avoid revolutions" | ||
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vertigo1
Scotland174 Posts
visualisation of the problem. | ||
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mrafaeldie12
Brazil537 Posts
If you raise the debt ceilling but keep funding those wars until 2014 you will still have a broken country,and unfortunately those who'll suffer the most are the middle working class and the retired folks. | ||
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kwizach
3658 Posts
On July 31 2011 06:21 Sub40APM wrote: i agree with the general spirit of your post but this part of it is just wrong. If I buy a US treasury, at face value, today with an interest payment of 4% and tomorrow the interest rate goes up to 5% my US treasury is worth less. [Think about it, who would want to pay 100 for something that pays him 4% when they can pay the same 100 and get something that pays 5% with the exact same risk profile.] You are making a profit in both cases, are you not? | ||
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Sub40APM
6336 Posts
On July 31 2011 06:31 kwizach wrote: You are making a profit in both cases, are you not? Of course. But if you believe that interest rates are going to go up you are going to less likely to invest in lower yielding debt since as soon as the interest rate goes up your bonds are automatically revalued at a loss. My general point was that investors might be paid more on new debt they also automatically lose out on their old debt. And more broadly I've been suggesting that a lot of people buy US debt not because they think they can make a ton of money but because *they have to* because their own economic/trade policies demand it. I wasnt disagreeing with the spirit of your post, just a technical aspect of it. | ||
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kwizach
3658 Posts
On July 31 2011 06:38 Sub40APM wrote: Of course. But if you believe that interest rates are going to go up you are going to less likely to invest in lower yielding debt since as soon as the interest rate goes up your bonds are automatically revalued at a loss. My general point was that investors might be paid more on new debt they also automatically lose out on their old debt. And more broadly I've been suggesting that a lot of people buy US debt not because they think they can make a ton of money but because *they have to* because their own economic/trade policies demand it. I wasnt disagreeing with the spirit of your post, just a technical aspect of it. I know, and I agree with the rest of what you said, I simply don't think what I wrote was "just wrong" :p The interest rates are not likely to continuously jump by such large margins as to deter investors from lending money at any point, or at least during a significant amount of time. | ||
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Dreamscythe
Finland273 Posts
http://www.bbc.co.uk/news/technology-14340470 | ||
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Sub40APM
6336 Posts
An imperfect analog to this would be a place like Ireland or Greece. Very few people in 2006 would have predict what happened to those countries and so bought their bonds [especially German/French banks who had the same kind of relationship in funding Greek/Irish debts the way the Chinese/Oil exporters fund America's debts..] But as we can see today the interest rates those countries have to pay on their debt is higher than many developing countries. | ||
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Sub40APM
6336 Posts
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kwizach
3658 Posts
On July 31 2011 06:56 Sub40APM wrote: Well, lets hypothetically say that tomorrow China says "No more peg" and the Arab countries say "No more dollar denominated oil contracts" right? And the USD suddenly drops 50% in value. We could easily see a jump of interest rates that crushes current bond prices. So for those people who invest into bonds with *profit* as motive instead of *policy* they would be burned pretty bad. An imperfect analog to this would be a place like Ireland or Greece. Very few people in 2006 would have predict what happened to those countries and so bought their bonds [especially German/French banks who had the same kind of relationship in funding Greek/Irish debts the way the Chinese/Oil exporters fund America's debts..] But as we can see today the interest rates those countries have to pay on their debt is higher than many developing countries. Dude, I agree with you that one would rather lend to the US with a higher rate than not :p But in neither of the examples that you just cited did investors stop lending money because of suddenly increased interest rates, which is my point: investors are not going all to stop lending to the US if they see the interest rate go up. Maybe some will want to wait to see if the rate goes even higher, but others will still keep lending. | ||
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Sub40APM
6336 Posts
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JonnyBNoHo
United States6277 Posts
On July 31 2011 07:03 Sub40APM wrote: Anyway my point in general is, when a lot of people buy US debt because their motivation isnt profit but some sort of not-free market policy the argument that we have to look treasuries as a purely economic good is stupid and cruel. Correct, China's economic policy is to trade goods produced in China for US dollars and then lend those dollars back to the US consumer so they can buy more China goods. It's like crack for the US government and the consumer - money pours in from China and we get to indulge in expensive government programs and buy stuff without the pain of first having to first earn the money. HOWEVER it's also like crack from China's perspective. How can they NOT lend to the US? What else can they do with all those US dollars?? They can't import like crazy that would kill their economy so they lend lend lend! If China can't fix their side of the problems (they ARE trying to in their new 5-yr plan) their economy will eventually blow up just as the US economy has. | ||
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kwizach
3658 Posts
On July 31 2011 07:16 Sub40APM wrote: Yes but interest rates are a function of market demand. So if a lot less investors want to buy we can see a spike in interest rates. And there is a difference between paying 4% and 20% for both the US and the investors. I know this. At this point I'm not even sure what you disagree with in my original post :p | ||
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Sub40APM
6336 Posts
On July 31 2011 07:25 kwizach wrote: I know this. At this point I'm not even sure what you disagree with in my original post :p Just with the part where I thought your wording implied people will keep buying treasuries with *profit* as their main motivation. We both agree that people will keep buying the treasuries. | ||
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Sub40APM
6336 Posts
On July 31 2011 07:17 JonnyBNoHo wrote: Correct, China's economic policy is to trade goods produced in China for US dollars and then lend those dollars back to the US consumer so they can buy more China goods. It's like crack for the US government and the consumer - money pours in from China and we get to indulge in expensive government programs and buy stuff without the pain of first having to first earn the money. HOWEVER it's also like crack from China's perspective. How can they NOT lend to the US? What else can they do with all those US dollars?? They can't import like crazy that would kill their economy so they lend lend lend! If China can't fix their side of the problems (they ARE trying to in their new 5-yr plan) their economy will eventually blow up just as the US economy has. They could fix their problems by raising domestic interest rates. letting the yuan float and allow a real bond market to form. But that would go against the interests of incredibly powerful party insiders. And the ordinary Chinese suffer because of it. When they blow up, things will be worse then they could have been. | ||
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Jayjay54
Germany2296 Posts
http://usdebt.kleptocracy.us/ | ||
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vertigo1
Scotland174 Posts
On July 31 2011 08:07 Jayjay54 wrote: dunno if thats already in here. if not, enjoy. http://usdebt.kleptocracy.us/ its already posted on the very page you reposted it | ||
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uiCk
Canada1925 Posts
On July 31 2011 08:07 Jayjay54 wrote: dunno if thats already in here. if not, enjoy. http://usdebt.kleptocracy.us/ i don't really understand the purpose of visualizing how much paper is needed to print 100 trillion dollars. This is sensationalism at its best. | ||
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vertigo1
Scotland174 Posts
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