National debt, get out your checkbook

Originally Posted by Gisella

Thanks Rob...

But when we say one nation is buying another nations governemnt debt...how does it work? Than is just like having shares? And at some point we are in the 'mercy' of 'their' hands???

(...)

Originally Posted by joyboytoy79

The Bush admin has been pushing US government bonds in China and Japan. More specifically, they have been selling them to the GOVERNMENTS of those countries. This is bad for the US, because, in essance, those countries now own a part of the US, in much the same way your car is owned by a bank when you purchase it with a loan. If not handled well, this could lead to a very real international crisis. When China starts cashing in its bonds, if we don't have the money to pay them back, they could have a very real reason to "foreclose" on us. One can only guess at what collateral they will seize.

Originally Posted by rob_just_rob

Debt is an investment that pays interest. Government bonds are a category of debt. The U.S. finances its deficit with government bonds that individuals, investment companies, or national banks can purchase.

Japan and China buy U.S. bonds because (on the surface, anyway) they consider them a decent investment. Japan's interest rates are so low that, presumably, U.S. debt is a better investment. Also, given that the U.S. is in a huge trade deficit with China, all the goods that the U.S. buys from China are paid for in U.S. dollars which China (or Chinese vendors) now holds.

The U.S. dollar declined quite a bit over the last couple of years, which means the value of the U.S. dollars Japan and China hold has declined. Not a good thing for them. However, Japan and China are both big oil importers, and oil is traded in U.S. dollars for the moment. So they need the US bucks to buy their oil.

(One big reason the U.S. is pursuing a policy of confrontation with Iran is that Iran is considering selling oil in Euros. If enough oil-producing countries start selling oil in Euros, oil-purchasing countries won't need U.S. dollars anymore and the value of the U.S. dollar will drop like a brick. That's another discussion, though).

Japan and China do have a pretty big club to wave at the U.S.A. - if they suddenly decide to sell all their U.S. dollar investments, the value of the dollar would drop dramatically. Moreover, if they stop buying U.S. dollars, the U.S. wouldn't be able to finance its deficit. Either option is very bad for the USA.



Pretty much. I visit relatives in the USA yearly. 5 years ago, one USDollar was equal to about 1.5 Canadian dollars. Everything in the USA looked pretty pricey to me. Now, the U.S. dollar is equal to about 1.1 Canadian dollars, and everything in the states looks dirt cheap. It's all relative.




No argument here.

Originally Posted by Gisella

Dirty..if you can..expplain me about those private banks...in reallity most banks are owned by few big international banks??? Do you know their names???

Gisella instead of me ranting and raving about the Federal Reserve and the fact that Income Tax is ILLEGAL and unconstitutional, I suggest you watch this documentary made by Aaron Russo. Watch it and be prepared to be blown away.

http://http://video.google.com/video...n%3Along&hl=en

Originally Posted by rob_just_rob

Practically speaking, they can't foreclose.

However, if there isn't money to pay them back, one of two things will happen: Either the bonds will have to be refinanced at a higher rate of interest (to reflect the increased risk due to the U.S. not having enough cash to cover its debts) or China will sell the bonds at a reduced face value. Which will crush the value of any other new or existing U.S. bonds, and drive the dollar downward sharply. Either way, it's bad news for the U.S. of A.

Realistically, if the Chinese expect the U.S. dollar to drop 15% over the next 3 years, and they hold (for example) a 3-year bond with a 4% coupon, they're LOSING money on the transaction. So they'll sell the bond for (approximately) 3% less than its face value. Sell enough of these, and the U.S. dollar will drop about 3%. Which revises the dollar's 15% drop over 3 years to an 18% drop. Now you have to re-evaluate the 3-yr, 5% bonds. And so on...

That's a simplified example, but hopefully y'all get the idea.

Originally Posted by SpeedoGuy

Originally Posted by Gisella

In your oppinion..what can the US do to be out of this mess???

Originally Posted by Gisella

Than the Federal Reserve is not the nations 'safe'...I thought it was...

Sorry about my ignorance...thanks for your patience about many posts of mine...I'm learning with you guys...

Originally Posted by Gisella

Than the Federal Reserve is not the nations 'safe'...I thought it was...

Sorry about my ignorance...thanks for your patience about many posts of mine...I'm learning with you guys...

Originally Posted by joyboytoy79

Gisella,

Your ignorance is not willfull. In fact, you seek to remedy it. I see no need for you to apologize, as your inquisitive nature is quite refreshing.

Indeed, i think the board is better for the questions you post here. Thank you so much for being you!

Originally Posted by rob_just_rob

(One big reason the U.S. is pursuing a policy of confrontation with Iran is that Iran is considering selling oil in Euros. If enough oil-producing countries start selling oil in Euros, oil-purchasing countries won't need U.S. dollars anymore and the value of the U.S. dollar will drop like a brick. That's another discussion, though).

Originally Posted by Gisella

Than the Federal Reserve is not the nations 'safe'...I thought it was...

Sorry about my ignorance...thanks for your patience about many posts of mine...I'm learning with you guys...

Originally Posted by SpeedoGuy

Bumping this thread back up because of this:

GAO Chief Warns Economic Disaster Looms

It goes along with with the oft published observation that Americans are accumulating far too much debt and not saving enough.

It also goes right along with my personal observations. I see my neighbors' lifestyles and I just have to wonder. They all have bigger homes than me, bigger (and newer) cars, boats, RVs, lots of kids and all the trappings of the affluent suburban life in 2006 America. Yet, at the same time, I know they don't make as much money as I do.

What gives? How can that be possible? Simple: Credit. And the fact that they're not saving for retirement. And those unhappy facts are going to be a problem for us all someday.