We are really screwed now!!
- Thread starter NoDrama
- Start date
my son is 14.WOW am i talking about you.. yeah Sybil I am. You attacked me in a gun thread and called me everything but a trader. And hell I served,,,,,,,,,,,,, did u? doubt it,,,,, and your sons service doesn't count. May God bless him and keep him safe BTW...
as you carry-on yourself.
U told me your son was in the Corps??????Must have been he other FDD,,LOL there are so manymy son is 14.
nope, never said that. my son is 14. everyone here knows that. i mention it a lot.
who's annoying who now? i thought you left.
you love me.
[youtube]x0I6mhZ5wMw[/youtube]
hom36rown
Well-Known Member
No we don't. What bloat? We have NO money. If China stopped buying US treasuries, in effect, calling in trillions of dollars of owed money, we would be unable to pay them back. Our only choice would be to create liquidity(print money)...all of which would come immediately flowing back into the US, creating a huge influx of inflation as China buys up America piece by piece. The dollar would plummet, interest rates would soar ...creating stagflation of epic proportions.
Now, some people say China depends on our consumption...but that's a load of shit. The world no more depends on America's consumptions than medieval serfs depended on the consumption of their lords.
Our IOU's have no intrinsic value, the people of China are no better off with all of these IOUs...it would be, of course, when the IOUs are repaid and the Chinese gov't uses the money that China is supposed to be better off...But we cannot legitimately pay them back. Of course they would still get some kind of return on the inflated money they receive, but the sooner they stop buying our treasuries the more value they will get out of their dollar denominated assets...and they are aware of this. They have already stopped buying long term US debt, and are diverting investments elsewhere.
Now, as America imported less, there would absolutely be disruptions to Asian markets, and initially there would be some losers, as there are many people who profit from the current situation, but only at the greater expense borne by the Chinese people. The Chinese have plenty of capacity to consume their own products, and unlike Americans have the savings to back it up. After a couple of years of market correction, China would be back and booming, and be the most powerful economy in the world...while America would still be left wanting.
You must really think I don't understand economics, cause I sort of feel like you are talking to me like an idiot lol. Yes, if you buy a CVS bond, you will get more money in exchange...but what you have to consider is the value of the money you receive, not the nominal amount. Obviously the US will always be able to pay back our bonds, even if we are in debt, because we we have a printing press...but by printing the money, we also devalue it, and the holder of the bond would actually be losing wealth in the exchange.
We are not the best place to invest in. Our economy is a joke. I'll say it again, 11 trillion+ in public debt, 60 trillion+ including unfunded liabilities(which does take into account earnings), and growing trade and account deficits adding trillions to that figure annually...with no end in sight. We can't payback all of this money, without turning in Zimbabwe that is. The US is going to have to suffer some very painful reform before we are out of the hole again...and everything the government does is only making the problem worse. Again, to actually pay back this money legitimately, would mean we would have to begin saving money....savings are acquired through, under consumption, and sacrifice....less consumption would result in a badly NEEDED recession, as our economy is based on consumption. But our government resists recession at all costs. They encourage us to go out and spend. Like cash for clunkers for example...incentivizing americans to get rid of paid off cars so they can incur more debt is ludicrous... But it all has to come to an end some time, we can't fund our consumption through borrowing money forever...and when we are cut off, we will finally be forced to deal with the roots of our economic issues, instead of just trying to paper over them.
Our debt is not a result of loans to Americans or the American gov't. It is an accounting entry that largely represent US assets bought with trade dollars overseas. So it is not as if the Chinese have loaned us trillions of dollars that we used to fund our infrastructure, but rather we have traded US assets for imported goods. Of course these goods do nothing to help with the infrastructure of our economy, so they are a wasted investment. The result is stock dividends, rental income, capital gains and other investment income is received by foreign investors instead of US citizens.
Our health care system, if by that you mean medicare/medicaid, is going to collapse for the same reason the rest of the economy is going to, we are broke...we spend money we don't have. The new plan that Obama is pushing, will do nothing to fix this, it will just pile on more debt that we cannot afford. The auto bailout was a failure, and if their plan for restructuring were any good in the first place, they should have been able to get a loan from the private capital investment market. The bank bailouts I am on the fence about. one thing is for sure, is that they were handled horribly.They could end up doing more harm than good. Americans savings rate is in the negatives, savings are needed to fund debt, so if these financial institutions loan out money to a broke public, we will just be in the same spot a few years from now, and all the inflation that will have resulted will be an undue burden. But thats a whole other topic.
Our economy is not growing...The sign of a growing economy is wealth creation. Our consumption has been growing for quite some time, however, consumption does not equate to wealth creation. Quite the opposite, since much of our consumption is funded through foreign credit, a huge portion of our GDP reflects wealth we have destroyed, or shipped overseas rather.
But we are not growing, and it is a bad thing.
We don't need to curb the 'deflationary setting'. Deflation is the solution, not the problem! Prices need to drop.
hanimmal
Well-Known Member
This is a hard concept for people to understand, but I will try anyway.
Our GDP is basically our yearly salary as a country. But the wealth that we have built up far exceeds any other country in the world. So that is like saying that a very rich person is broke because he quit his job to go accept another job with a different firm.
The bloat we carry is things like our military budget (we don't need as much as we have), over priced governmental structure, basically everything that is inefficient in our system is bloat.
Now for china, you need to understand long term debt. People hear debt, and they immediatly think the worst. But think of a bond, to the company that is issuing it, it is called debt. But they are using that money to invest in their company as a way to grow it. And when the time that was agreed upon comes up it gets paid back (depending on the type of investment it is). China's bought treasuries are not in danger of being called back, that is a scare tactic.
I think that is a wrong analogy. Think of it like a company. If company A's largest purchaser was cut off and nobody else was going to be able to replace them, what would happen. If China cuts off its largest purchaser (US) they would have nobody that could pick up the slack in sales. They do depend on us. That is how the world economy works. We can make due without, but usually there is no reason to.
Here is a link to the debt we owe: http://www.treas.gov/tic/mfh.txt Again this is not a debt that has to be paid back right away. Just like my house loan. The bank cannot tell me to pay it all off in the next year or they will take it away. You are too thinking too short term.
It is a great idea to invest elsewhere.
Analogy (I love analogies) You have a life savings of $40k. If you need to invest it so that it can grow, where do you put it. I would invest most of it in the largest most stable business that give constant growth, and place some in small areas that might pay off, but might go bust too. The majority of my money is relatively safe, while the other investments are not as safe but have a larger % return if they pay out.
But don't disagree that we need to do better. That money is not a bad thing, as long as we use it well. If we use it in ways to advance our economy instead of maintaining a status quo then it is very good debt.
You miss though that we have the capacity to make these things, it is just FAR cheaper to buy them elsewhere. So if we cut off all trading we would not be left without for a long time since we have a wealth of natural resources within our borders. That is a big reason that we are as wealthy as we are.
I don't mean to talk to you like that, so I am sorry if it comes off that way. I just like analogies.
But it seems that you are assuming that the dollar is going to go into hyperinflation. It is possible, but very unlikely, and that is why people in other countries (and our own) keep investing here. As much as people don't admit it, we have been very responsible with the value of our money.
You seem to think that we will tank the currency we use to pay off a debt that is not due until decades from now. And don't take into account the national income in the future. People tend to see 14.4 trillion in GDP, with net exports of -1trillion (I don't know this number off the top of my head) and think that we are losing 1 trillion a year. That is not the case. It just means that the goods we sell overseas is less than the goods we buy overseas.
This is mixing up GDP with financial capital and bonds. You are right the money is mixed and foreign capital does flow in and out. But bonds are directly sold by the government and that is most of the debt that gets talked about. That money is directly used by the government in the infrastructure (hopefully).
The public beating that the big 3 took addressed the private funding in their senate hearings. They wanted to but because the financial market was on the verge of a meltdown they froze all lending. So there was not anyone that they could borrow from. That is what caused them to need the money.
Agreed with savings, people need to pay off the bad debt they have and start to pay for things when they can afford them.
The money in the system is already there. We have one of the most expensive system in the world but with horrid results. It needs to be fixed. This is one of the areas that carries so much bloat and has horrible inefficiencies. A complete overhaul of the system is much needed, but I will make due with one insurance program and some new regulations.
They are mostly going through worse recessions that we are. And if you think that Americans are not buying up everything they can in other countries when prices are so cheap you would be mistaken. This crisis will make a bunch of people at the top a lot of money, and it will be brought home. And it will go both ways, but because we have far more wealth here in the states it means we are better poised to make the most out of it.
The issue I have is that your assumptions only work if the wealthy of our country are idiots and not looking for the best future investments.
Trade deficits are not always a bad thing. And wealth is growing. Think about how many foreign soil American companies are out there, that is money that still comes back to the states. It is not counted into our GDP, but it is there. We buy from foreign companies, but we go over there and produce for them. This allows us to have our cake and eat it too.
We get to gain in foreign owned properties, more investments in other companies over there, that brings in even more money.
It can be looked at that any company that closes down here and opens in a foreign country as a loss of wealth, but really it is a gain, since we just picked up that land and their resources, and if done properly (Usually not though I will admit) those workers here that lost their job can be used to produce something more valuable and just trade for the cheaper item that we let them produce for us.
This is why education is SO DAMN IMPORTANT!!!!!!! (Not directed at you, I just hate that people think school is a waste).
If $1 is worth more today than it is worth tomorrow, investments become almost worthless, and that will slow actual growth. Because why invest into a company that will usually give about 10% return over 10 years, if you can make 8% doing nothing.
If it is worth less tomorrow you know you need to not let it set under a mattress and let it work to grow.
hom36rown
Well-Known Member
I'm all too aware of what the GDP is and what it means for our economy, thanks.
No, it is nothing even remotely like that.
We are not wealthy. We may seem wealthy because Americans have a lot of material possessions...but we are really broke. This is why Americans having a negative savings rate, and why we have such an enormous debt. We are the equivalent of a wealthy heir who philanders his fortune away. Any wealth we do have is because of the work of ancestors, not our own, or it was bought with borrowed money. To use your analogy, imagine there is a family, let's call them the Jones. Lets say the Jones' breadwinner loses their job. To keep up appearances and maintain the same lifestyle, the family resorts to borrowing and goes deeper and deeper into debt. It is a situation that cannot go on indefinitely. Unless the family gets jobs that enable them to repay their debt and legitimately finance their previous lifestyle, the family is going to have to face some painful adjustment.
Contrast this to a another family, lets call them the Chins. The Chins sacrifice, underconsume, and live below their means to accumulate a significant financial nest egg. During their accumulation period, they appear far less prosperous than their spendthrift neighbors, the jones, who live extravagantly on credit card and mortgage debt. Now some may look at the Jones' extravagant consumption(analogous to our GDP), and believe that they are the more prosperous family. However beneath the surface, the Chins current sacrifice allows them to build a bright future, while the Jone's shortsightedness comes at a great sacrifice to their future lifestyle.
Now, to 'get a job', that is to say, generate revenue to repay our debts...we have to balance the budget, and fix the trade deficit(which is unlikely to happen without normal market pressures). And we are certainly doing nothing to correct either of these issues...in fact we are making them worse. Now from what I gather, you seem to believe that the US will pioneer in some new technology that the rest of the world will be forced to buy off us, fixing our trade deficit and turning our problems around overnight...I think that is unrealistic, and to count on it is downright foolish. You used solar panels as an example...if the US made new advances in solar power technology, it would only be a matter of time before the Chinese or Japanese or whoever would have the same technology and were producing the panels for cheaper. And this is true with almost any technology. What we need to do is produce more exports, which we cant do becuase we are not at all competitive, and consume less...now the way to fix both of these problems is, of course, corrective recession...and again, the government will not let this happen. It refuses to let the market correct itself, creating more and more speculative imbalances that are only going to lead to a bigger bust down the road.
I agree, namely medicare/medicaid, social security, and like you mentioned, the military.
I understand long term debt, thanks. And like I already stated, China has stopped buying our long term debt...and most of their assets are already in short term debt.
Yes, I understand that incurring debt as an investment can be a good thing...duh. But if you cannot pay back the debt then it is a bad thing. We can agree upon this, yes? Well this is what I am trying to explain to you...we are on an unsustainable path. We cannot legitimately pay back our debt the route we are going.
Again, China, Japan, Saudi Arabia, etc etc will not fund our debt forever. Scare tactics have nothing to do with it.
Well if company A's largest purchaser was paying them with IOUs that it couldnt repay, than company A is better off. The company has cut it's losses. Now, company A may have to cut back on production, meaning cutting back on employment...but those employees were only better off at the expense of the entire company. The company continues to make the same amount of money(remember, its 'biggest purchaser(debtor) was paying in IOUs, not cash), and now it is better off because it is not paying for wasted production. Now that the company is better off, they will continue to grow, and soon enough they will be able to rehire the employees who were fired.
Again, there would obviously be disruptions, and there would also be many losers..but just like the analogy, the country as a whole is better off. Remember, we are not actually paying for all of this Chinese production, the Chinese people are picking up the tab, until we pay them back.
Also, China, with over a billion people, has plenty of capacity to consume its own goods, and they actually have savings to pay for this consumptions.
Most of China's over 2 trillion in US assets is in SHORT TERM debt. And I am not insinuating China would call its loans early...like I just said, most of this debt is short term, there is no need to. Do you realize that we pay over 400 billion a year in interest payments alone?
Yes it is.
Oh you mean businesses like AIG, Citigroup, BofA, GM? I'm sure most people thought these were stable, and many actually thought, similar to the US, that these companies were too big to fail, Well, they weren't and either are we.
Well if it were me, I would put most of it gold, or gold stocks, as a hedge against the hyperinflation we will undoubtedly suffer. The rest I would proably put in Asian and European markets, in businesses closely tied to China.
But we haven't... as evidence by the fact that we have growing trade and account deficits. If the money were helping the economy, the trade deficit would be getting better not worse.
I didn't miss anything...yes we have the capacity to to manufacture...and if China stopped buying our debt we would be forced to manufacture more...but it would take the economy quite some time to adjust, and it wouldn't be pretty. Again, the effects of the Chinese stopping buying our debt would be devastating, I don't think you can find many economists that would argue otherwise....it wouldn't exactly be an optimal environment for investment, and growth would be slow...but we would recover eventually.
Yes there will be hyperinflation. With money creation, like the trillions we are creating right now, comes inflation, it is inevitable. Inflation has already been bad for decades. Our monetary policy encourages inflation, because it is the only way for us to continue to borrow and spend money. Inflation is what fueled the housing bubble...and the dot com bubble before it...and the next bubble to burst will be the US treasury securities bubble. Never before have we created such a large sum of money out of thin air.
Yes, that what I'm saying. We are creating trillions of dollar, which will of course comeback in the form of inflation. Foreign countries, such as China for example, have trillions in US assets, if these were to be monetized and flow into the US it will create additional inflation. The Chinese government(I keep using China as an example because they are our biggest creditor, but japan and Saudi Arabia are also major creditors) holds bonds that are maturing all the time. Like I stated earlier, we pay over 400 billion a year in interest alone. The Chinese do hold bonds that will not mature for decades, but they also hold many that will mature this year, as well as next year and the year after...and the majority is in short term debt, as in about a decade.
You mean net imports...that is called our trade deficit...very good. And you are wrong, a trade deficit of a trillion dollars a year DOES mean we(the US economy that is) are LOSING a trillion dollars a year...in fact even more...because the Central banks accumulating these dollars don't just sit on them, they buy treasury securities with them and collect interest. Its a pretty simple concept...if you buy more than you sell, you have lost the difference.
Its like this: Say China imports $50 billion worth of US goods, and the US imports $300 billion in Chinese goods, annually. This means we have a trade deficit of $250 billion annually. Thats 250 billion dollars that goes to the Chinese central bank, who then pays the companies involved in the transactions with Yuan from its reserves(as obviously dollar bills are of no use to Chinese citizens) and then buys $250 billion in US treasury securities...So 250 billion is then deposited into the US treasury, where it is then spent to build tomahawk cruise missiles or used to fund a study on the mating habits of the black bear, or whatever the hell we spend our money on...and then the government owes $250 billion + interest to the Chinese central bank.
Actually I was mixing up NIIP and external debt with public debt. And I didn't even mention GDP so I don't know what you're talking about there. You're right, treasury securities fund infrastructure...But foreigners hold other assets besides treasury securities, stocks, real estate, whatever...but I suppose that is sort of off topic. Never mind, my bad.
.
Well going back to the NIIP thing I was talking about, foreigners are buying more of our assets than we are buying of theirs. The rest of the wrold currently own almost 3 trillion more of us, than we own of them. And European and Asian markets are recovering quicker than US markets as far as recession.
We have acquired quite a bit of wealth from our debt in the form of material possession, but remember this is all on borrowed money.
Not true at all. Quite the opposite. Our switch from a manufacturing to a service based economy was based on people looking for the best investment, this of course did not make our economy stronger. unfortunately if the market is distorted...by say, running a trade deficit for decades....then malinvestment is an inevitability. And when speculative imbalances reach a tipping point, then corrective market restructuring is necessary, if it is avoided or manipulated...than it only creates more speculative imbalance...worsening the problem.
It is pretty plan to see, from Americans savings rates, their ballooning credit card debt, and the growing account and trade deficits that we are losing wealth, not gaining.
No it isnt.
They could but they don't. Chances are they will end up as part of our service economy ,which produce very little exportable goods, and therefore do nothing to help with the trade deficit.
Education is great. But as long as we like our crappy Chinese products, we have to produce somtheing of value to give to them in return. Now theres a chance that we could invent the next great invention, that only we can produce for some reason(like what I have no idea), but its unlikely.
Obviously it would not be a permanent thing. Deflation is what we need, because we need prices to drop. We would still have inflation in the long run.
hanimmal
Well-Known Member
I was going to go line by line, but I got some stuff to do today. Good discussion.
While I agree with us needing to get off China's nipple. There is a lot of evidence that a trade deficit is not a bad thing, check this out when you get a second since you seem to grasp economics http://www.cato.org/testimony/ct-dg081999.html .
The assumptions that you make that I disagree with are mainly a few points, that everything else is based off of.
1. That you say we are not wealthy. The accumulated wealth of our past generations, and all of our natural resources, the untapped oil, our farms, cities, educated people, ect is all of our wealth as a country. We far outstrip any other country in the amount of that wealth. Just like Paris Hilton, she does shit all and will always be wealthy because of her parents hard work. And that wealth is growing even though she runs through it like water because of investments.
2. That you sat we cannot make money unless you have a trade surplus. We an invest in other places and that adds to our countries wealth. It may help that countries wealth more, but that does not mean that we are not also benefitting from it.
This is a pivotal point in economics. More than one person can benefit from trade, even if one person is trading more of their product than the other. Right now China has learned that investing their money in our country is great because of the returns they get. Check the chart out on this one (about a 1/3 of the way down) http://www.fas.org/sgp/crs/row/RL34314.pdf. It shows how much China had ramped up their savings with us when they realized how good of a deal it was. They are still new to things like trade and investment, and did get scared with this crisis (as they should have).
They are a investment partner. Does it matter who benefits more as long as both sides benefit? Of course it does, we both want to leverage for the bigger slice, and that is where most this posturing comes from. They want a larger cut, but we don't want to give it to them. They say we will stop investing with you, causing you to not have as much money to spend. And we say that is fine we already got ours so if you want to not make as much money elsewhere go for it, even if you were able to pull all your money out all at once, which you cannot, it will devalue our dollar to such a high degree that it would be worthless, and since you have almost 50% of your GDP invested into our country you would collapse.
3. Foreign investment is a bad thing. It is not. Chinease capital invested in our country means that we get to use their money to build our wealth.
That being said if we continue to use it to do things like fund wars it is a bad thing. Helping the country become healthy is not a bad investment. If people are healthier they will be more productive at work (That is one for the conspiracy theories to jump on). And that health means that the country has made a good investment. We need to seriously improve our educational system, and technologies. These are the ways that we will best optimize the money we spend as a country.
4. Personal spending is the same as government spending. It is not, usually. Things like a new capital building is a wasted investment if the last was perfectly fine, and war is one of the worst investments, because it usually can be done with a small team and some investments in schools and hospitals which is far less money. But education, roads, health care, internet, phone lines, technologies, are nothing like a tv, or cable, hell weed. Spending money is not a bad thing if you put it in the right places. Things that don't have a real purpose should only be bought with disposable income.
You should still invest in the things that will yeild the best returns with the money available, but at some point you need to enjoy your life.
Everything else that we disagree about seems to be a byproduct of those points.
What you say I usually would agree with if the context was what you are saying, but due to the above I have to strongly disagree with you.
While I agree with us needing to get off China's nipple. There is a lot of evidence that a trade deficit is not a bad thing, check this out when you get a second since you seem to grasp economics http://www.cato.org/testimony/ct-dg081999.html .
The assumptions that you make that I disagree with are mainly a few points, that everything else is based off of.
1. That you say we are not wealthy. The accumulated wealth of our past generations, and all of our natural resources, the untapped oil, our farms, cities, educated people, ect is all of our wealth as a country. We far outstrip any other country in the amount of that wealth. Just like Paris Hilton, she does shit all and will always be wealthy because of her parents hard work. And that wealth is growing even though she runs through it like water because of investments.
2. That you sat we cannot make money unless you have a trade surplus. We an invest in other places and that adds to our countries wealth. It may help that countries wealth more, but that does not mean that we are not also benefitting from it.
This is a pivotal point in economics. More than one person can benefit from trade, even if one person is trading more of their product than the other. Right now China has learned that investing their money in our country is great because of the returns they get. Check the chart out on this one (about a 1/3 of the way down) http://www.fas.org/sgp/crs/row/RL34314.pdf. It shows how much China had ramped up their savings with us when they realized how good of a deal it was. They are still new to things like trade and investment, and did get scared with this crisis (as they should have).
They are a investment partner. Does it matter who benefits more as long as both sides benefit? Of course it does, we both want to leverage for the bigger slice, and that is where most this posturing comes from. They want a larger cut, but we don't want to give it to them. They say we will stop investing with you, causing you to not have as much money to spend. And we say that is fine we already got ours so if you want to not make as much money elsewhere go for it, even if you were able to pull all your money out all at once, which you cannot, it will devalue our dollar to such a high degree that it would be worthless, and since you have almost 50% of your GDP invested into our country you would collapse.
3. Foreign investment is a bad thing. It is not. Chinease capital invested in our country means that we get to use their money to build our wealth.
That being said if we continue to use it to do things like fund wars it is a bad thing. Helping the country become healthy is not a bad investment. If people are healthier they will be more productive at work (That is one for the conspiracy theories to jump on). And that health means that the country has made a good investment. We need to seriously improve our educational system, and technologies. These are the ways that we will best optimize the money we spend as a country.
4. Personal spending is the same as government spending. It is not, usually. Things like a new capital building is a wasted investment if the last was perfectly fine, and war is one of the worst investments, because it usually can be done with a small team and some investments in schools and hospitals which is far less money. But education, roads, health care, internet, phone lines, technologies, are nothing like a tv, or cable, hell weed. Spending money is not a bad thing if you put it in the right places. Things that don't have a real purpose should only be bought with disposable income.
You should still invest in the things that will yeild the best returns with the money available, but at some point you need to enjoy your life.
Everything else that we disagree about seems to be a byproduct of those points.
What you say I usually would agree with if the context was what you are saying, but due to the above I have to strongly disagree with you.
This one statement jumped out at me more than any other. From the years 1776-1933 the US dollar held its value and from the lowest to the highest was only 6 cents difference, essentially ZERO inflation. Since 1933 the dollar has lost 96% of its value, I would hardly call that being responsible with the value of our money. The dollar loses half its value approx every 15 years, so in your lifetime the dollar will be worth 3.5 cents to you in the end. Hardly Responsible.
Money is not wealth!
hanimmal
Well-Known Member
Money does not equal currency. I said the dollar can go into hyperinflation (possible although extremely unlikely). The value of our money stays pretty constant since it what that currency represents.
What are you comparing the price of the dollar to? Itself or gold, euro, yen? This is a very loaded statement that you made.
the value has dropped like a rock. Did no one ever lament to you how they could buy "Such and Such for a Nickle when I was your age". Hell even I remember when a Hershey bar was only 10 cent. they cost a Dollar now, that's hardly keeping its value there Han.
Yes of course comparing the dollar to gold, thats how all currencies are valued world wide. Gold is the Ultimate store of value, the reason why the central banks of the world have most of it.