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September 07, 2007

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As long as there is a buyer for Chinas U.S. bonds, there is no problem.

The problem will come if the U.S. tries to sell new debt to cover current needs and no buyers show up...cause they already bought some offa China.

(1) Why would China try to sell so fast that it would devalue its own remaining holdings? (Can't just dump all them treasury notes in one day, one month, or even a year).

(2) China sells off. Interest rates rise. American consumers are defaulting all over the place. And Chinese goods suddenly can find no markets.

Why would China even risk these scenarios? If they can't find buyers, they are way better off holding on.

America only accounts for about 20% of China's exports, Ara.

And most of the stuff they make for sale to us isn't made here anymore.

In short: We need China far more than they need us.

if the U.S. tries to sell new debt to cover current needs

I thought it is quite clear the the US is selling new debt all the time. US Bureau of Public Debt shows a very nice, clear, real-time graph about it:

http://www.treasurydirect.gov/govt/charts/charts_debt.htm

The real problem is the unrealistic credit rating of US government. At the present, the word "safe" is defined as "US T-bill". If the market start to re-evaluate the safety of the US T-bill, there is a massive market distruption because a huge number of institutional investors will start rebalancing their investments. They have to, because their internal or external regulations will require it. So, there is a massive bubble waiting to burst.

And oh yes, there is a good reason for the Chinese to rebalance their treasury towards the euro and yen. Can the US pay back the debt? Yes, but the US dollar may suffer from heavy devaluation. In that case, it might be better to have only 50 % of the treasury in US currency instead of 70 %. Let's see if the Chinese can pull it off without destroying the value of US dollar. I'm sure they'll get all the help they need. No one wants the dollar to drop.

"We won't know if China is behind this until the Treasury releases its TIC data in November

What a long wait. There must be a lot of money to be made if you can get your hands on this data early.

America can't "devalue" the dollar, Lurker.

The Chinese have pegged their currency to it.

The dollar is worth exactly whatever the Chinese Central Bank says it's worth.

It may cost them to maintain the peg, but...they can afford it.

America can't "devalue" the dollar, Lurker.

The Chinese have pegged their currency to it.

So, america can't devalue the dollar. The Chinese can devalue the dollar.

Is this starting to smell like "ex-superpower"?

In view of China's developing alliance with Iran, I would guess that this is intended as a gentle hint about what would happen if anybody started bombing Iran.

It's written by Ambrose Evans-Pritchard. Ignore it.

The man is basically...

well, let me put it this way. You know how there are a lot of Hollywood films with an incredibly wise and benign old British guy with a private-school accent in them? Obi-Wan Kenobi, Professor Dumbledore, Merlin, Gandalf, M, John Hammond in "Jurassic Park"...

well, Ambrose Evans-Pritchard is there to stop the Americans thinking we're all like that. He is, IOW, a complete loon. Check out what he used to write about Clinton.

I'm sure China can absorb whatever hit they might take by getting out of US bonds, especially in exchange for further damaging the US economy. It's not like they have to answer to their citizens (at least in the democratic sense).

The idea that china can't sell their US investments because it would make their remaining US investments worthless is precisely homologous to the idea that the USA can't get out of iraq because it would result in us losing.

We can continue to fight in iraq and hope that eventually we'll get such a good outcome that it will be worth everything we put into it.

China can continue to subsidise the US government and hope that the US economy will improve.

Both arguments ignore the concept of sunk costs.

It's understandable that a lot of americans believe both.

You know how there are a lot of Hollywood films with an incredibly wise and benign old British guy with a private-school accent in them?

i believe that's the "Magic Brit" archetype.

i believe that's the "Magic Brit" archetype.

Hey, that guy was my mechanic!

As near as I can tell, the best reason that China would have to dump it's debt is because it thinks that a US dollar collapse is imminent, and would prefer other Asian central banks get screwed than their own. A prisoner's dilemma has been keeping the dollar value up for a while now, but that dilemma also rewards the prisoner that turns on the others.

Because unlike most national debt, US debt is repayable in US currency. If the value declines significantly, then debt holders get paid back in monopoly money.

As other things can cause a dollar decline, like Russia exchanging its US foreign reserves for Euros, the whole situation is a bit precarious.

I've been trying to keep up on this situation for a number of years, but it's difficult because guys like Setser are pretty bright and use a lot of economic and financial concepts that are way over my head.

It's written by Ambrose Evans-Pritchard

While I prefer the plummy sounds of the incredibly wise and benign, sometimes, the screechers are correct. China has been running a classically mercantilist trade policy for years: intentionally underprice the market to have trade surpluses and use the gold, er, dollars collected to create more of a capital base. They're mostly pissed that they dollars that they collected with this method have dropped in value. Frankly, they have done almost all of the damage they can do to our economy already. Whether they buy treasuries any more doesn't matter that much, nor are they responsible for bailing Bush out of his feckless management of the US.

This could be good news.

I've always said the Iraq war won't end until the Chinese decide to quit paying for it....

OT - The CIA director needs to STFU:

Hayden said that journalists should stick to "exposing al-Qaida and its adherents for what they are."

Man its quiet here. I feel like I should throw out something inflammatory just so those hanging around can pound on me for a while.

I have a few things to beat on Dems about – open thread?

Hi Steve:

"I have a few things to beat on Dems about - open thread?"

MSN has a headline this afternoon pointing out that Osama Bin Laden has a few things to beat on Dems about, too.

I wonder if he'll break with the Democratic Party and vote for Fred Thompson. ;)

In other news, two truly wonderful bad pieces of news are converging to make George Bush very happy:

Osama speaks just as the surge reports become public;

and

the economy shows scary signs of recession (and worse) just in time for the debate over extending the Bush tax cuts beyond 2010.

The worse things get, the more sprightly George's step. I love coincidences.

Perpetual war.

Perpetual shaky recovery from the miracle Clinton economy of the 1990s.

Ignoring the fact that America isn't the world's only superpower anymore is a bipartisan effort, OCSteve.

No American pundit, left or right, wants to go through whats Europe's intellectuals have had to suffer these past 50 years:

Irrelevance

*shudder*

OCSteve, I think it's in extremely poor taste to beat on Dems at the moment.

We need to give Dems a free pass about everything until the GOP is no longer a threat. When the large majority of republican legislators have been replaced by new guys who weren't present in 2004, or definitely when the Republican Party has become a third party and Libertarians are a major party with very few Republicans in their higher ranks.

Until then, however bad they are the Democrats are what we have to oppose the GOP and they deserve a free hand, a free pass, and a US government blank check.

Once most of the current GOP leadership is jailed we can begin to breathe easy. But until then it's treasonous to attempt divisive behavior among anti-Republicans.

I agree with everything J Thomas wrote, and my funny bone has nothing to do with it.

Ronald Reagan meant the opposite of everything he said: Speak ill of all Republicans, dead or alive.

Except my mother, OCSteve, DaveC. Sebastian, Von, and the rest of the open-minded suspects.

The latter group must be kept under surveillance, however. Like Larry Craig (no, not really), they could go either way.

John Thullen: First, I love you and don’t ever go away that long again. That is, love, in a guy kind of way. You know, slapping butts in the locker-room, etc. Nothing weird, not that there’s anything wrong with that…

I have your list beat. Too much for OT though. Seems like everyone is lethargic around here. I’ll throw out some thinly supported claims and let all beat on me (not that there’s anything wrong with that…)

Anyone bored go here.

Setser posts about this issue today.

His position: I don’t buy it. Not really.

wrt the unopenminded, I wonder if 28%er will become a noun of common usage someday, sort of like 49er.

Re: the giving Democrats a free pass- I could see that for the little things.

But do it too much and you just create a new lack of consequences for bone-headed actions that we've seen for the last several years.

"OBL, Democrats, Chomsky"

And, the bearded one hates "insane taxes", too. There's a platform there somewhere.

No word regarding his thinking on the Yankee's starting pitching.

And, the bearded one hates "insane taxes", too. There's a platform there somewhere.

I know man – 2.5%?!? He almost had me…

If it wasn’t for the whole mass murder beheading thing….

Kellandrus, I sympathise with your problem.

However, our political system is currently set up as a duopoly. In economics the difference between monopoly and duopoly isn't usually considered all that important. Two choices can easily leave you with two bad choices. And that's a bad thing. It's what we have to work with.

So my preference is to give the Democrats a completely free pass until the GOP threat is mostly gone. And then we can try to clean up the democrats if the party that replaces the GOP doesn't look that good.

Meanwhile, I want to change the system into something that lets third parties become important. Something like IRV voting would be a good start. Let people vote for third parties and not lose their votes. I don't even mind so much if it's mostly two parties shutting out the rest, provided it's each to change which two parties it is that get to shut out the rest.

But changing the system is a long-term goal. Right now, the Democratic Party is all we have available to help destroy the GOP. We *could* go after both parties at the same time, and perhaps try to replace them both with third parties. I would prefer not to go with that strategy, but if the Democrats get too bad I'll be forced into it. Not something I'd be very hopeful about.

So, we're americans. In WWII we sided with Stalin to beat Hitler. And then it took us a very long time to beat the USSR, but eventually we did it. We can certainly ally with the Democrats to beat the GOP. It's the obvious right thing to do, in the short run.

via uggabugga. Powerline on the bin Laden video:

* "It has never been plausible to suggest that the war in Iraq is anything other than fundamental to our conflict with al Qaeda and related groups; after this video, any such suggestion is impossible."
* "Second, the affinity between Muslim extremism and Western leftism has never been so clearly displayed."
* "Remember the video that bin Laden released just before the 2004 election? It was virtually a campaign commercial for John Kerry."
* "... it sounds like [Bin Laden] may be a fan of left-wing web sites as well. Thus, "all of mankind is in danger because of...global warming."
* "Speaking of Vietnam: just as the Democrats can't let go of Vietnam analogies, neither can bin Laden."
* On Iraq, bin Laden reads from the liberal script. Iraq is a "civil war;" ... the justifications for the Iraq war are "based on deception and blatant lies;"
* "I'm starting to think bin Laden is a regular poster on the Daily Kos."
* "Bin Laden's tirade does have a point: "To conclude, I invite you to embrace Islam." Presumably the American liberals who share so many of bin Laden's beliefs don't intend to convert."

Is it acceptable to consider that as slightly controvrsial?

I very much hope that this is a false alarm:

Think of it this way -- imagine that you're living in an old wooden building that's full of old papers and oily rags and such. And every day you take a gallon of gasoline and pour it around in the basement. And there's a persistent gas leak that leaves an increasing gas smell. And the wiring is old and there are a variety of bare wires that occasionally make large sparks, particularly when you throw a light switch etc.

And every now and then there's a "false alarm" where you think there might be a house fire, but then it turns out OK.

It isn't if, it's when. And it isn't sooner or later, it's sooner. And every time you get a reminder about it and ignore the warning because it was a "false alarm" you're being willfully irresponsible. You are not doing due diligence.

If I had any significant money to invest I'd put a lot of it outside the USA. Mexico? Traditionally we've exported a lot of our economic shocks to mexico. Europe?

Buy the time you get an alarm that isn't a false alarm, it will be too late to do anything effective.

Hartmut: Is it acceptable to consider that as slightly [controversial]?

Hindrocket could claim that teh defeatist left-wing-liberal-socialist-Dhimmi-crats have joined AQI in drafting a cookbook on how best to serve baked babies, and Howie Kurtz would still invite him back to Reliable Sources the following Sunday.

uggabugga link here; Powerline link here (biggest bombshell: apparently Bin Laden is angling for a gig as a Kos front-pager!)

Once most of the current GOP leadership is jailed we can begin to breathe easy. But until then it's treasonous to attempt divisive behavior among anti-Republicans.

Oh dear, I think that is crazy talk. As for me, I think that the idea of rounding up all Cubs fans and putting them in re-education camps has some merit, but I wouldn't propose actually doing it.

Between the housing and credit meltdown, and China's attempt to start minimizing its exposure to that, we see once again the hazards of financing economic growth on speculative lending.

Countrywide, which is in the process of collapsing, holds my mortgage. It's a traditional 30-year fixed, and I (knock wood) have no troiuble making the payments. So color me not surprised that Countrywide sends me, at least once a week, ads for refinancing my loan. The lure isn't lower interest rates, they can't offer me lower than what I have; the lure is to cash out some of my equity. To, in other words, increase my debt. To, in more other words, endanger my own finances in order to shore up theirs - and, no doubt, to put myself in a position of defaulting.

I used to see this sort of thing as "eating the seed corn." But our economy - hell, our whole society - has been doing that for so long that we're past the seed corn eating stage.

What we remind me of now are the Easter Islanders. They kept knocking down their trees, saw that the trees weren't being replaced, experienced first-hand the degradation of their environment to the point of non-sustainability... and just cut down the remaining trees even faster.

OT but related, I see the race to claim the Arctic as the same thing. GCC, accelarated by our use of fossil fuels, has melted the ice cap. So what do we humans do? We scramble to get the oil deposits that melt has exposed... so we can refine, and use, more fossil fuels. Thus further accelarating GCC.

We as a species are using up everything we can, as fast as we can get our hands on it. We've seen the cycle happen, over and over again, and it doesn't stop us. I'm coming to the conclusion that, as a species, we're just too stupid to live.

Agreed on the Cubs fans.

Hartmut:

"Is it acceptable to consider that as slightly controversial?"

Well, I was trying to resist the impulse but Redstate has a post by Streiff regarding the OBL tape.

65 comments --- three samples:

The estimable Hunter:

"The convergence of America's enemies and the DNC is now complete. Osama is now indistinquishable from a leadership position Democrat"

The Hinz in the "Hinz Report":

The "cut and run" immediately Democrats have been trying for years now to "inspire" the jihadists to victory."

mbecker908 (he of the dangerously enlarged prostate):

"In a civilized society the leadership of the Democratic Party would have been hung (following the appropriate trial) several years ago. They are utter, complete, disgusting filth. I'm hoping to live long enough to be able to urinate on their graves."

Happily, Moe (a decent fellow) breaks in to ban, sorry, I mean, roughly agree with the above three.

Now, this is fairly threatening talk on their part, naturally, but I'm trying to understand the thinking process of tough guys who, presumably, favor an armed citizenry for self-defense and THEN threaten various forms of violence against a segment of that armed citizenry.

But, they armed Saddam too, and look what happened to him.

Well, I'm going to clean, oil, and load my keyboard and polish my badge now in case various dickless types show up in the bathroom stall next to me and knock three times and wanna tell me they love me at gunpoint.

JT: Happily, Moe (a decent fellow) breaks in to ban, sorry, I mean, roughly agree with the above three.

Did he find a way to work puppet-wielding anti-war protesters into his reasonable-as-always commentary?

And here I thought there was far more in common between OBL's statement of principles and the GOP platform. Let's see:

-- marginal income tax rate of 2.5%.

-- strong family values, including opposition to gay rights and gender equality.

-- in favor of capital punishment.

All he needs is to change his position on the Israeli-Palestinian question, and he could be a contender for the Republican Presidential nomination.

DTM: *snerk*

Re: 'Controversial?' Hardly.

(Sounds like David Brooks has been reading wingnut blogs - apparently we are all OBL now).

Read the web blog "Culture of Life News" and she will show you the way. China is in the drivers seat, period.

Well, the NYT today says that the dollar's dropping like a rock compared to the Euro and the yen. The first sign that hyperinflation is around the corner?

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