How is austerity doing in Europe

[Oldstyle]

The federal government is obligated to pay all US debts as they come due. Our national debt isn't a burden for anyone, including the US government. The US has an unlimited credit card to obtain 'debt' at whatever interest rates it so chooses. It can create all the money it needs to pay off any and all debt without creating new debt if it so chooses. The only time we'd run into trouble is if the government taxed more than it spent (running budget surpluses) . Again, no matter anyway you cut it, spending is virtually costless for the federal government.

Here's the reality: the US Government has no limits on its ability to create/spend money other than one that's arbitrarily self-imposed. The level of public debt or debt-to-GDP ratios cannot affect the government's ability to spend. It all boils down to appropriations by Congress. A fiscal policy should be measured by policy outcomes, not by something as trivial as the size of the deficit.

You two are seriously scary! I'm getting the impression that both of you actually attended college somewhere and may have taken some economics classes (unlike Rshermr...who's absolutely clueless about the subject) but at some point you bought into this fantasy that because the Federal Government can create money that it has a "magic credit card" that it can keep running up debt on.

 

[Oldstyle]

**
The problem with your little scenario is that we're rapidly approaching the point where the interest on the money we owe is going to be more than our entire Federal budget. *What happens THEN to your "balance sheet"?

When that happens, when interest equals tax receipt, then the government won't be able to*borrow more. *The deficit will end.

But isn't that austerity? *So the worse case scenario is austerity and smaller gov't. *Which is the conservative manrta.

So the conservatives are upset about the eventual occurance of what they want to do to avoid it.

The worse case scenario is the solution to the worse case scenario.

Nobody is saying that the budget shouldn't be balanced. But it should be done the right way, at the right time, for the right reason, with an understanding of what it is going to do. Paying down the debt reduces savings and depresses the economy. To much, to fast, at the wrong time causes the opposite effect.

It's like counter steering on a motorcycle. To turn a motorcycle, you push on the handlebar on the side you want to turn. It's completely counter intuitive. The handlebar literally pushes back harder and the bike just leans right over. The machine drops like a rock. It's the oddest thing. It has to do with precession, the way the angular momentum of the wheel is conserved. It's a feedback system.

Reduce government spending and tax reciepts fall off, by more than the reductionnin spending. It's a feedback system. That is if it's done at the wrong time, by the wrong amount. The next thing we know, Congess has jacked up spending somewhere else and we are right back where we started. It has happened every time.

When we reach the point when we can't borrow anymore the deficit won't magically "end". That's like saying when you can't make the balloon payment on your house mortgage that the title magically becomes yours. It doesn't work that way. We'll still have the deficit. What's worse is that as our credit rating gets downgraded...and that IS what will happen if we continue on the way we are now...the interest on our debt will only get larger.

As for your notion that fiscal conservatives should be happy because austerity will occur when we reach that point? That's so blind to the reality of how bad a situation we'll be in at that point. When the well dries up that's going to mean draconian cuts to everything...and I'm not talking about the miniscule cuts that progressives portray as draconian every time a conservative tries to rein in the growth of government...I'm talking about the REAL thing.

 

[itfitzme]

**
The problem with your little scenario is that we're rapidly approaching the point where the interest on the money we owe is going to be more than our entire Federal budget. *What happens THEN to your "balance sheet"?

When that happens, when interest equals tax receipt, then the government won't be able to*borrow more. *The deficit will end.

But isn't that austerity? *So the worse case scenario is austerity and smaller gov't. *Which is the conservative manrta.

So the conservatives are upset about the eventual occurance of what they want to do to avoid it.

The worse case scenario is the solution to the worse case scenario.

Nobody is saying that the budget shouldn't be balanced. *But it should be done the right way, at the right time, for the right reason, with an understanding of what it is going to do. *Paying down the debt reduces savings and depresses the economy. *To much, to fast, at the wrong time causes the opposite effect.

It's like counter steering on a motorcycle. *To turn a motorcycle, you push on the handlebar on the side you want to turn. *It's completely counter intuitive. *The handlebar literally pushes back harder and the bike just leans right over. *The machine drops like a rock. *It's the oddest thing. It has to do with precession, the way the angular momentum of the wheel is conserved. *It's a feedback system.

Reduce government spending and tax reciepts fall off, by more than the reductionnin spending. *It's a feedback system. *That is if it's done at the wrong time, by the wrong amount. *The next thing we know, Congess has jacked up spending somewhere else and we are right back where we started. It has happened every time.

When we reach the point when we can't borrow anymore the deficit won't magically "end". *That's like saying when you can't make the balloon payment on your house mortgage that the title magically becomes yours. *It doesn't work that way. *We'll still have the deficit. *What's worse is that as our credit rating gets downgraded...and that IS what will happen if we continue on the way we are now...the interest on our debt will only get larger.

As for your notion that fiscal conservatives should be happy because austerity will occur when we reach that point? *That's so blind to the reality of how bad a situation we'll be in at that point. *When the well dries up that's going to mean draconian cuts to everything...and I'm not talking about the miniscule cuts that progressives portray as draconian every time a conservative tries to rein in the growth of government...I'm talking about the REAL thing.

The government cannot spend what it does not take in. *Outlays equals receipts plus bond sales. *Thats simple math. *And to the best of my knowledge, that's all there is to it. *So on the eventuality that the interest should ever equal receipts...*

You know what, your right. *Bond sales could simply be increased to cover interest plus the deficit.

Of course, if the credit rating gets downgraded, the amount of bond sales willmbe greater.

Except it being a really big number, so? *Are you expecting the financial markets to collapse because the US credit rating is down graded to AA-?

You haven't talked about a REAL thing yet.

All you've said is it's a really big number. *I agree, it's a big number. *It's still just a number.

What counts is real production. *That, of course, is dependent on money being loaned by private banks to businesses. *So how is REAL production affected by this really big number that is in a computer?

What's the REAL connection? *

 

[itfitzme]

**
The problem with your little scenario is that we're rapidly approaching the point where the interest on the money we owe is going to be more than our entire Federal budget. *What happens THEN to your "balance sheet"?

When that happens, when interest equals tax receipt, then the government won't be able to*borrow more. *The deficit will end.

But isn't that austerity? *So the worse case scenario is austerity and smaller gov't. *Which is the conservative manrta.

So the conservatives are upset about the eventual occurance of what they want to do to avoid it.

The worse case scenario is the solution to the worse case scenario.

Nobody is saying that the budget shouldn't be balanced. *But it should be done the right way, at the right time, for the right reason, with an understanding of what it is going to do. *Paying down the debt reduces savings and depresses the economy. *To much, to fast, at the wrong time causes the opposite effect.

It's like counter steering on a motorcycle. *To turn a motorcycle, you push on the handlebar on the side you want to turn. *It's completely counter intuitive. *The handlebar literally pushes back harder and the bike just leans right over. *The machine drops like a rock. *It's the oddest thing. It has to do with precession, the way the angular momentum of the wheel is conserved. *It's a feedback system.

Reduce government spending and tax reciepts fall off, by more than the reductionnin spending. *It's a feedback system. *That is if it's done at the wrong time, by the wrong amount. *The next thing we know, Congess has jacked up spending somewhere else and we are right back where we started. It has happened every time.

When we reach the point when we can't borrow anymore the deficit won't magically "end". *That's like saying when you can't make the balloon payment on your house mortgage that the title magically becomes yours. *It doesn't work that way. *We'll still have the deficit. *What's worse is that as our credit rating gets downgraded...and that IS what will happen if we continue on the way we are now...the interest on our debt will only get larger.

As for your notion that fiscal conservatives should be happy because austerity will occur when we reach that point? *That's so blind to the reality of how bad a situation we'll be in at that point. *When the well dries up that's going to mean draconian cuts to everything...and I'm not talking about the miniscule cuts that progressives portray as draconian every time a conservative tries to rein in the growth of government...I'm talking about the REAL thing.

I haven't bought into anything. *You're mistaking that I don't buy this "household consumer credit" nonsense as meaning I've somehow bought into something else. *I simply don't trade one nonsense off for some other nonsense. *It simply doesn't matter what I believe, so I can afford to not believe anything. *I can afford to just deal with what I have knowledge of.

And people simply get use to things. *Today they are a bit concerned about a $16 T debt and $1.6 deficit. *If five years from now, the debt and deficit are $32 T and $3.2 T, people will be no more and no less concerned. *When the economy is booming, less people are concerned. *When the economy sucks, more people are concerned.

In 1945, the debt was 113% of GDP. Now it's 75%.

And the only people that really matter, as far as concern goes, is the private lenders, and the business and consumer borrowers.*As long as people are willing to borrow and lend, there is no problem.

So far, no one has presented any reason as to what the deterious effect is except, "It's really big and that is scary." *It's not even 113% yet.

 

[bripat9643]

Right. Jesus, what can I say to you. You must know better than that, me boy. Uh, maybe not.

Only a fool thinks he knows better than the simple truth.

The simple truth is you're a fool.

Bada.. brump... brump....

Ya walked right into it, man...

That must be your conception of wit.

 

[bripat9643]

Fooling? No one. You never ask someone to define anything on the internet, dipshit. If they know the answer, they tell you. If they do not, they look it up and tell you.
So, dipshit, go look it up. It is simple enough that even you may be able to understand it. And I have no reason to educate you.

Translation: You don't have a fucking clue about what Feudalism is.

It doesn't really matter because Libertarianism is futile. *It's Feutilism.

Translation: You don't have a fucking clue either.

 

[bripat9643]

The federal government is obligated to pay all US debts as they come due. Our national debt isn't a burden for anyone, including the US government. The US has an unlimited credit card to obtain 'debt' at whatever interest rates it so chooses. It can create all the money it needs to pay off any and all debt without creating new debt if it so chooses. The only time we'd run into trouble is if the government taxed more than it spent (running budget surpluses) . Again, no matter anyway you cut it, spending is virtually costless for the federal government.

Here's the reality: the US Government has no limits on its ability to create/spend money other than one that's arbitrarily self-imposed. The level of public debt or debt-to-GDP ratios cannot affect the government's ability to spend. It all boils down to appropriations by Congress. A fiscal policy should be measured by policy outcomes, not by something as trivial as the size of the deficit.

You two are seriously scary! I'm getting the impression that both of you actually attended college somewhere and may have taken some economics classes (unlike Rshermr...who's absolutely clueless about the subject) but at some point you bought into this fantasy that because the Federal Government can create money that it has a "magic credit card" that it can keep running up debt on.

That's exactly what they believe. I've been hearing this brand of abracadabra for 40 years. It was just as stupid 40 years ago as it is now.

Notice that neither of them has responded to the initial question: What is Feudalism? Instead they are wallowing in the details of this FED Three Card Monty that no one is interested in.

 

[Kimura]

The federal government is obligated to pay all US debts as they come due. Our national debt isn't a burden for anyone, including the US government. The US has an unlimited credit card to obtain 'debt' at whatever interest rates it so chooses. It can create all the money it needs to pay off any and all debt without creating new debt if it so chooses. The only time we'd run into trouble is if the government taxed more than it spent (running budget surpluses) . Again, no matter anyway you cut it, spending is virtually costless for the federal government.

Here's the reality: the US Government has no limits on its ability to create/spend money other than one that's arbitrarily self-imposed. The level of public debt or debt-to-GDP ratios cannot affect the government's ability to spend. It all boils down to appropriations by Congress. A fiscal policy should be measured by policy outcomes, not by something as trivial as the size of the deficit.

You two are seriously scary! I'm getting the impression that both of you actually attended college somewhere and may have taken some economics classes (unlike Rshermr...who's absolutely clueless about the subject) but at some point you bought into this fantasy that because the Federal Government can create money that it has a "magic credit card" that it can keep running up debt on.

I've taken more than some classes. I have both undergraduate and graduate degrees in economics.

I was trying to avoid some more wonkish posts for the sake of brevity. I won't be home until this evening, but I will elaborate on sectoral balances.

Here's what I will cover:

1)Deficits actually create wealth and net financial assets.

2) One sector's deficit is another sector's surplus.

3) The spending habits of people are determined by income.

4) Aggregate income is directly correlated with aggregate spending.

 

[Oldstyle]

You can get as "wonky" as you want, Kimura and it still won't change reality. Your claim that one sector's deficit is another sector's surplus is another way of saying "robbing Peter to pay Paul". The problem with your notion that deficits create wealth is that deficits create more than just wealth...they create debt and they create interest payments on that debt. You see no problem with this of course because you think your "magic credit card"...the fiat...is going to allow you to just create more money to pay for it all. My question for you is what happens when our currency becomes weaker and weaker? You take it for granted that the dollar will always be viewed as being worthy of value. There ARE other currencies out there. People choose to buy dollars or base their economies on the dollar because we're viewed as the world's most stable currency. What happens when our mounting debt brings about another credit downgrade? Do you not recognize that we're reaching the point where we're getting by more on our past reputation for stability than our future prospects for it? That people invest in the dollar not because of it's actual stability but because of it's reputation for stability? What happens if that reputation begins to be exposed as lacking? What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

 

[Rshermr]

You can get as "wonky" as you want, Kimura and it still won't change reality. Your claim that one sector's deficit is another sector's surplus is another way of saying "robbing Peter to pay Paul". The problem with your notion that deficits create wealth is that deficits create more than just wealth...they create debt and they create interest payments on that debt. You see no problem with this of course because you think your "magic credit card"...the fiat...is going to allow you to just create more money to pay for it all. My question for you is what happens when our currency becomes weaker and weaker? You take it for granted that the dollar will always be viewed as being worthy of value. There ARE other currencies out there. People choose to buy dollars or base their economies on the dollar because we're viewed as the world's most stable currency. What happens when our mounting debt brings about another credit downgrade? Do you not recognize that we're reaching the point where we're getting by more on our past reputation for stability than our future prospects for it? That people invest in the dollar not because of it's actual stability but because of it's reputation for stability? What happens if that reputation begins to be exposed as lacking? What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Jesus, Oldstyle. Try understanding what is being said, instead of what you can say to make it wrong. You are looking like a conservative tool. You have claimed to be rational. If you have a real problem with the statements being made, ask for CLARIFICATION instead of always simply dropping in the conservative political statement. Regarding what Kimura said, if you would re-read it, he stated he would expand on four points. When he got home. Does that seem too unreasonable to you. Hell, not everyone can drop what they are doing and spend a half hour explaining things to you (which, in my opinion, will be a near Herculean effort). Some actually have commitments during the day.
And by the way, if you still want to question my degree, accept my bet. If I do not, then YOU MAKE SOME MONEY. You see, me boy, personal attacks simply make you look like what you are.

 

[itfitzme]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

 

[Oldstyle]

You can get as "wonky" as you want, Kimura and it still won't change reality. Your claim that one sector's deficit is another sector's surplus is another way of saying "robbing Peter to pay Paul". The problem with your notion that deficits create wealth is that deficits create more than just wealth...they create debt and they create interest payments on that debt. You see no problem with this of course because you think your "magic credit card"...the fiat...is going to allow you to just create more money to pay for it all. My question for you is what happens when our currency becomes weaker and weaker? You take it for granted that the dollar will always be viewed as being worthy of value. There ARE other currencies out there. People choose to buy dollars or base their economies on the dollar because we're viewed as the world's most stable currency. What happens when our mounting debt brings about another credit downgrade? Do you not recognize that we're reaching the point where we're getting by more on our past reputation for stability than our future prospects for it? That people invest in the dollar not because of it's actual stability but because of it's reputation for stability? What happens if that reputation begins to be exposed as lacking? What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Jesus, Oldstyle. Try understanding what is being said, instead of what you can say to make it wrong. You are looking like a conservative tool. You have claimed to be rational. If you have a real problem with the statements being made, ask for CLARIFICATION instead of always simply dropping in the conservative political statement. Regarding what Kimura said, if you would re-read it, he stated he would expand on four points. When he got home. Does that seem too unreasonable to you. Hell, not everyone can drop what they are doing and spend a half hour explaining things to you (which, in my opinion, will be a near Herculean effort). Some actually have commitments during the day.
And by the way, if you still want to question my degree, accept my bet. If I do not, then YOU MAKE SOME MONEY. You see, me boy, personal attacks simply make you look like what you are.

"Try understanding what is being said, instead of what you can say to make it wrong."

That's the essence of a debate, Tommy...saying what you think makes another person's argument invalid. Duh?

If I still want to question your degree? Gee, was that in doubt? Let me see if I can clear this up. I think you're an internet poser with almost no knowledge of economics at all. Is that clear enough for you?

 

[Oldstyle]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

When China buys our debt, they do so in large part to keep the value of their currency, the yuan, lower than the dollar so that the price of their goods remains attractive. If however China chose not to do so, the resulting devaluation of the dollar would be catastrophic for both the US economy and most of the rest of the world's economies that are tied to the dollar.

 

[bripat9643]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

Your question only shows profound ignorance of the way the world economy works, especially the way currencies work.

 

[oldfart]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

All central banks try to hold stocks of foreign exchange sufficient to meet the needs of trade with their main trading partners. In addition, most central banks hold additional reserves in either gold, "Special Drawing Rights" (SDR's), or "reserve currencies" (US dollar, British pound, Japanese yen, and to a minor extent French & Swiss francs and German marks). The Renminbi is not a reserve currency because the Chinese keep it at an artificial price. I think what you are asking is the effect of the US dollar being used less as a reserve currency.

A move away from the US dollar would cause the demand for dollars to be reduced and the price (foreign exchange rate) in open markets to fall. A dollar would buy fewer of other currencies. Imports from the US would appear cheaper to other countries and foreign goods more expensive in the US. Imports would fall and exports rise, increasing employment and perhaps stimulating a bit higher inflation. The problem is that everyone else in the world is currently trying to do the same thing (currency devaluation) for the same reason (to stimulate demand). The last thing in the world other central banks want is a run on the dollar. On top of everything else, it would make the dollars they hold as a reserve currency and dollar-denominated assets held by their citizens such as Treasury bonds less valuable.

So in short, ain't gonna happen.

 

[Rshermr]

You can get as "wonky" as you want, Kimura and it still won't change reality. Your claim that one sector's deficit is another sector's surplus is another way of saying "robbing Peter to pay Paul". The problem with your notion that deficits create wealth is that deficits create more than just wealth...they create debt and they create interest payments on that debt. You see no problem with this of course because you think your "magic credit card"...the fiat...is going to allow you to just create more money to pay for it all. My question for you is what happens when our currency becomes weaker and weaker? You take it for granted that the dollar will always be viewed as being worthy of value. There ARE other currencies out there. People choose to buy dollars or base their economies on the dollar because we're viewed as the world's most stable currency. What happens when our mounting debt brings about another credit downgrade? Do you not recognize that we're reaching the point where we're getting by more on our past reputation for stability than our future prospects for it? That people invest in the dollar not because of it's actual stability but because of it's reputation for stability? What happens if that reputation begins to be exposed as lacking? What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Jesus, Oldstyle. Try understanding what is being said, instead of what you can say to make it wrong. You are looking like a conservative tool. You have claimed to be rational. If you have a real problem with the statements being made, ask for CLARIFICATION instead of always simply dropping in the conservative political statement. Regarding what Kimura said, if you would re-read it, he stated he would expand on four points. When he got home. Does that seem too unreasonable to you. Hell, not everyone can drop what they are doing and spend a half hour explaining things to you (which, in my opinion, will be a near Herculean effort). Some actually have commitments during the day.
And by the way, if you still want to question my degree, accept my bet. If I do not, then YOU MAKE SOME MONEY. You see, me boy, personal attacks simply make you look like what you are.

"Try understanding what is being said, instead of what you can say to make it wrong."

That's the essence of a debate, Tommy...saying what you think makes another person's argument invalid. Duh?

If I still want to question your degree? Gee, was that in doubt? Let me see if I can clear this up. I think you're an internet poser with almost no knowledge of economics at all. Is that clear enough for you?

Oldstyle, here is the thing. Usually, it is a really good idea to understand the other person's statement, BEFORE you make disparaging remarks. He gave you a really basic outline of what he was going to explain WHEN he got back home. Later. You immediately jumped in with your remarks. I simply stated it is a good idea to hear the argument before you dispute it. Sorry that it seems beyond you.
Relative to your comments about my knowledge of economics, please bring forward an economic argument that you have ever won, me boy. Because I know of none. I simply see attack after attack after attack. Relative to your questioning of my degree, I can show you several times when you said I lied about having a degree in econ. But then, I am tired of wasting time with you. Personal attacks are your bag. And lying is one of the tools you tend to use often.

The thing is, you always seem to think you are winning economic arguments. As I am sure you believe now. Keep at it. And we can all make our own judgement. Looks at this time that you at least have a supporter in Bripat.

 

[itfitzme]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

When China buys our debt, they do so in large part to keep the value of their currency, the yuan, lower than the dollar so that the price of their goods remains attractive. *If however China chose not to do so, the resulting devaluation of the dollar would be catastrophic for both the US economy and most of the rest of the world's economies that are tied to the dollar.

So a strong Yuan would mean China would then purchase US goods, thus bringing manufacturing to the US and increasing employment, right?

That's a good thing, isn't it?

I am not clear how we get from the US households buying Walmart goods from China and China purchasing US bonds to China buying US dollars, but if were going to skip over that and go directly to the US dollar becoming weak, we have a huge trade imbalance which has been a complaint by some.

 

[Kimura]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

When China buys our debt, they do so in large part to keep the value of their currency, the yuan, lower than the dollar so that the price of their goods remains attractive. If however China chose not to do so, the resulting devaluation of the dollar would be catastrophic for both the US economy and most of the rest of the world's economies that are tied to the dollar.

What would happen if the US ceased to be the world’s reserve currency? Nothing would happen. Who cares if the Chinese stop purchasing US securities? They simply desire to save in US financial assets to obtain interest. They're also dependent on US credit creation, but that's another story.

In order to proceed, it’s critical for you to understand that in order for Chinese or the rest of the world to shed their respective dollar holdings they would have to exchange them for real goods and services produced by Americans. This means every foreigner that has US dollars would have to send us back their dollars for real goods and services which are produced by Americans. This is the only way for the Chinese, Japanese, Saudis or any portion of the foreign sector to shed their dollar holdings. For example, if a Japanese person exchanged their dollars with an Australian, this wouldn't work, since the world would still have said dollars in circulation. Basically, the roughly 5 trillion held by the foreign sector would result in the biggest shopping spree in human history. Our 500 billion dollar trade deficit would disappear and the US would have a surplus of 5 trillion dollars.

On the other side of the equation, China, Japan and the OPEC countries, which historically run enormous surpluses with the United States, would run deficits of a similar size. These countries would simply run deficits while we enter surplus. We would receive dollars and the foreign sector, including China, would receive the real goods and services produced by Americans, such as technology, software, automobiles, boats, planes, cloths, shoes, etc.

 

[EdwardBaiamonte]

If however China chose not to do so, the resulting devaluation of the dollar would be catastrophic for both the US economy and most of the rest of the world's economies that are tied to the dollar.

If China let the yuan float upwards in a free capitalist Republican market American goods would be a lot more competitive, world markets more efficient, and our standards of living would go up.

The idea that Chinese manipulation of the market is saving us from a catastrophe is insane.

 

[itfitzme]

I like this question

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

Do people buy dollars? *With what, not dollar? *Yuan? Euros? *So what happens when people buy dollars, except that one person then has dollarsnand the other person has Euros or Renminbi?

If a substantial percentage of foreign businesses buy Renminbi instead of US dollars, what is the effect?

All central banks try to hold stocks of foreign exchange sufficient to meet the needs of trade with their main trading partners. *In addition, most central banks hold additional reserves in either gold, "Special Drawing Rights" (SDR's), or "reserve currencies" (US dollar, British pound, Japanese yen, and to a minor extent French & Swiss francs and German marks). *The Renminbi is not a reserve currency because the Chinese keep it at an artificial price. *I think what you are asking is the effect of the US dollar being used less as a reserve currency. *

A move away from the US dollar would cause the demand for dollars to be reduced and the price (foreign exchange rate) in open markets to fall. *A dollar would buy fewer of other currencies. *Imports from the US would appear cheaper to other countries and foreign goods more expensive in the US. *Imports would fall and exports rise, increasing employment and perhaps stimulating a bit higher inflation. *The problem is that everyone else in the world is currently trying to do the same thing (currency devaluation) for the same reason (to stimulate demand). *The last thing in the world other central banks want is a run on the dollar. *On top of everything else, it would make the dollars they hold as a reserve currency and dollar-denominated assets held by their citizens such as Treasury bonds less valuable. *

So in short, ain't gonna happen.

The questions Oldstyle posed are ;

My question for you is what happens when our currency becomes weaker and weaker?

What happens when our mounting debt brings about another credit downgrade? *

Do you not recognize that we're reaching the point where we're getting by more on our past reputation for stability than our future prospects for it?

That people invest in the dollar not because of it's actual stability but because of it's reputation for stability? *

What happens if that reputation begins to be exposed as lacking? *

What happens to the US if the rest of the world chooses to buy yuan's instead of dollars?

It seemed that they needed to be boiled down to something more fundamental. The concept of "buying US dollars" seemed the fuzziest. *That is generally what I go after, my fuzziest comcept.

Certainly, the China central bank has stocked up on US currency and US bonds by a) buying US currency from Chinese businesses and b) using some of that to buy US bonds. *

That is all fine. *The world seems satisfied with the Federal Reserves methods, to the extent that Argentina simply pegged their peso to the US dollar for a decade.

And so it makes sense that countries would have adopted the US dollar as a world currency, stocking it as reserve.

Somehow, it managed to get to two conclusions;

a) the US dollar is the baseline standard upon which all other denominations are referenced. *I might infer that the real value of other denominations is its value relative to the US dollar, just as the US dollar real value is in termsmof CPI, relative to some baseline year basket of goods.

b) *And China's currency gaining in value relative to the rest of the world, and thereby being relatively closer in value to the US dollar, will result in a decline in the trade imbalance between the US and China, increasing US production and lowering US unemployment.

Those bonds are saving. *Money flows, it's not static. *So for savings to reverse, flow must reverse. *I am working on seeing what this means besides that US exports increase.

The problem I have is the colloquial misconception of what taxes really do. *The typical concept comes from the belief that a lower tax rate means more
purchasing power. A secretary looks at her paystub, sees $50 going out in taxes and figures that if she didn't have to pay that $50, then she could buy more stuff. *

And that would be true if only her taxes were $50 lower. *

What makes for spending power is relative net income. *

If her taxes go down, so does everyone elses taxes. *Everyone has $50 more dollars. *For a short while, that $50 bucks will buy more. *But, especially today with electronic pricing, prices rise. *Once the information propogates up the supply chain, prices adjust upward. *Spending power returns to it's previous level based on net relative income.

Now, there is one caveat, that resourses are fully utilized. A short term increase in money supply first increases output before prices adjust, if ouput can increase. Timing is everything.

So, let's suppose that the deficit is reduced, bond sales fall, and the flow of funds reverses from the US gov't out to bond holders. *What happens. *Well it depends on the flow of funds into the govt as taxes, the flow of funds out of the govt as expenditures, and what the bond holders do with their newly aquired US dollars.*

The last one is the most significant. *If it's just being stockpiled elsewhere, in foreign reserves, we might as well just print money. *

If it is being used to purchase US goods, then we want a balance that maximizes US employment and sustains US consumption.

This is more like a thermodynamics problem.

What we want is those funds flowing around to pay the bonds. It comes into the US as sales on exports, circulates in the US, to the gov't, then back to the bond holders as they cash them in. *All we are doing is paying them with the money they give us.

The key is in the balance of flow that maximizes US productivity and standard of living.

So what do we sell? *Isn't that the real issue, what does the US sell on a global market? *Does anyone think we are going to be selling pots and electric motors?