Hyperinflation Germany 1923

[AZXD]

China is Considering Ways to Diversify Out of the Dollar Daily Reckoning - Australian Edition, Australia - 16 hours ago And that's when the Chinese will really hate us. *** "Fears of a return to the 1930s are too pessimistic," writes David Bowers in the FT . ...

Why Our Enemies Are Laughing at Us American Daily, OH - 4 hours ago “Once you start issuing $1 trillion to $2 trillion, we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do. ...

[scout06]

Originally Posted by bluemoonlabel

The U.S. national debt consists of the sum total of all outstanding U.S. Treasury issued bonds and bills. Some are owned by U.S. citizens, many are owned by various banks, U.S. and foreign. The Federal Reserve owns a very large amount of treasuries, which it uses to conduct monetary policy. And finally, foreign governments own large amounts as well, such as those owned by China.

These treasuries are not IOUs in the sense that China could call up one day and say pay up. Rather they are contracts saying the U.S. government will pay interest at set intervals before paying the principle at a future time, typically 5 years or 10, etc. China cannot ask for the principle to be repayed before the treasuries mature.

What China can do, in order to raise funds is to sell the treasuries before maturation. Of course, selling so many treasuries at once will cause the price to crash, so while China will make some money, it will have to take a very large loss. There would be no direct effects on the U.S. What will happen is that the Treasury will find it much more difficult to borrow money (that is sell treasuries), making the Federal government's deficit spending much more difficult and costly. It may actually force a balanced budget, at least temporarily.

An alternative is for China to stop purchasing U.S. treasuries. That is, as the existing stockpile of treasuries mature, and the principal is paid back, China doesn't use that money to buy new treasuries. This way, China doesn't face a massive loss, but it also won't get its money back for years, possibly decades. The effects on the U.S. are much the same as the above case, except more gradually.

If China did decide to call in U.S. debt they would be hurting themselves more than they hurt the U.S. no matter what they do at this point. They simply have bought too many U.S. Treasuries for no good reason. The Chinese ruling class has bought into the Chinese blogosphere's delusion that holding large amounts of U.S. debt somehow gives China political leverage over the U.S. There have been official statements threatening dumping Treasuries if the U.S. interferes in X. (with X typically being Taiwan) Though this could be relying on the ignorance of U.S. elected officials and populace doing the work. It is for the most part an empty threat, because they would essentially be "cutting off the nose to spite the face" if the threat was actually carried out, and it may not need to be if enough Americans believe in the myth.

IMO...

Thanks for the clarification. I understood differently. I withdraw my fears...

[KingArthur]

Originally Posted by AZXD

That's okay, James Carville has come up with a plan to save us all!

[AZXD]

Peter Schiff on 2009-2010 USA Hyperinflation No need to fear this ... Divest your portfolio