Dumb question ya'll...China buying our US debt???

[Tyler Durden]

Hi everyone,

I guess as I understand it at this juncture, China's government, I guess, buys US Treasury Bonds or Bills, which I guess, effectively means they are loaning us money.

Right?

Is that how you understand it too?

Or am I way off base there?

Anywhooo.....where are the Chinese getting all this money to loan us?   

Seriously, that's what I am asking.

 

thanks!

[tombogan03884]

You understand it correctly and the short answer to your question is Wal Mart.
We are not the only ones buying their crap, but developed countries like the US, Japan, and South Korea out source a HUGE amount of their manufacturing to China since the take over of Hong Kong the Chinese saw what a good deal they were missing out on by sticking with their socialist "planned economy" . There have been HUGE increases in manufacturing capacity in China in the last 20 years, with entire new cities springing up and Coastal regions like Shanghai being opened up as free trade zones. Money has been pouring in faster than the Government can steal it, they have, however, become more cautious about buying up dollars and there have been rumors for years about them quietly selling off small lots of US debt and converting to other currencies , Euro's being the one most often cited.
I would not expect to see another big investment in the US like the one that financed the Porkulus unless the BO administration makes a drastic reversal of policy and starts returning to deregulated "Free market capitalism".

[Pathfinder]

To add to Tom's assessment, it is actually worse. China was buying our debt, it appears they have slowed down or all but stopped buying it, and they know the debt will go worthless as hyper-inflation sets in sometime in 2013.

If you doubt the sheer amount of US $ flowing to China, just pick a store, any store, not Wal-Mart, and browse through and look at where the products were made. Ninety percent will be China.

Also, with all of the money they have made, they have been buying raw materials, like metals (one of the reasons for the pressure on, and subsequent price increases on brass, lead, etc. for reloading as one example), and feeding their own economic development. For example, they are also doing multi-year (in fact multi-decade) huge scale development of dams, roads, airports, buildings, etc. with our cash. All this puts further demand on raw materials like cement, lumber, etc., increasing the prices to us. Oh, the people have to be fed, so they are buying foodstuffs as well.

In the past year, the world-wide economic hit has affected them, as companies like WW and others are not buying as much, so now the Chinese are taking an economic hit because we have taken a hit.

It's complicated, sort of, and messy, and it will get a lot worse. Once we hit the crapper in 2013 (the year a lot of bho's programs' price tag comes due), the Chinese will still want the vig on our debt, and we better be able to come up with it, or they will "break our legs" (i.e., take our assets).

A number of observers have been referencing BRIC - Brazil, Russia, India and China as the next big economic power block. Brazil has the resources, India the people, China the capital and Russia the muscle.

Long answer, hopefully providing some context.

[tombogan03884]

Don't put TO much faith in "Russian muscle" look at what happens every time Russian equipped Arabs try to take on Western equipped Israel. Or take a close look at the Iraqi scrap metal from Gulf war I.
That ain't the 1945 Red Army over there, Even Chechnya kicked their azzes. the only "Military" force they have beaten since Germany was Georgia, 1200 tanks Vs 120, and it STILL took them a week.

[twyacht]

+1 to what has been posted, and more and more economists, Heritage Foundation is one that comes to mind, also is predicting that with China getting the US about "bent over a barrel" to a position that suits them,

inflation in OUR economy is inevitable. We're still printing dollars as fas as the machines will go. The international value of the dollar is low, and Russia is/was never our friend.

They want to kick us rich, greedy Americans when were down....Forecasts for the second half of 2010 and 2011 are not bright.

[Sponsor]

[ccd]

All of the above is true, but the major factor was the Chinese Central Bank's ability to peg their currency to the dollar for two decades which artificially kept there currency low while artificially keeping the dollar high. This is why every one and there brother realized that it would pay over the long term to transfer their manufacturing to China. The US and China are basically dance partners handcuffed together. While the Chinese delinked the yuan from the dollar several years ago, they have tightly controlled how much it can float up. This helps to keep inflation under control(in China). The end result is that China is stuck with huge foreign currency reserves that it can not easily get rid of, without introducing inflation internally and in the major currencies. Unfortunately China being a mix of state owned and state controlled businesses is using these excess funds to not only buy natural resources on the open market but also the companies that control the production of all basic materials worldwide. Inflation in China and hyper inflation in the US is going to be the end result, it is just the longer it is held off the worse it will be when the bubble bursts.

[twyacht]

Inflation in China and hyper inflation in the US is going to be the end result, it is just the longer it is held off the worse it will be when the bubble bursts.
ccd.

Your 100% correct. Remember the policies that banks and mortgage lenders HAD to follow to finally create a housing bubble that burst?

Our economy is in that similar bubble right now.  GDP was skewed to cover current inventory levels that Wall Street won't even fall for.

After all America has done for most of the world, watch who will really be our ally. You will be able to count them on 1/2 a hand....

[Paraguy]

Culturally, the Chinese save a far greater percentage of their money than Americans.  We need to save more and not put ourselves in debt and the Chinese need to spend, which would benefit America as they are developing rapidly and have a higher demand for goods and services we can provide; but they need to open their wallets to do so.
A way to make our coutry stronger and less likely to be held over the barrel by a rogue nation would be to only buy what we can afford and stop cashing out our home equity to go to a trip to Mexico, go on a buying binge or buy a Japanese car.  There is a balance between stimulating the economy and buying foreign junk.  We need to not only save but buy smart.

[r_w]

What does a parasite do if it knows killing the host is suicide?   

[tombogan03884]

It goes right a head and kills the host, because it doesn't know what else TO do.