[Cruzandercerberus]

sy.ste, on 31 December 2009 - 06:36 AM, said:

the government are the people.

Incorrect, but this would seem to be the Russian worldview. Russia has no tradition of self-determination or self-rule. Russians are used to being ruled and they don't trust their fellow people to elect a leader. If given the choice they will elect a Dictator. Obviously this is not what we want over here.

[Cruzandercerberus]

Fencer of Alexander, on 29 December 2009 - 01:29 PM, said:

Of course everyone would rather have all their customers be nice well mannered representative democracies, but even for the Federal government it's all business at the end of the day. In the first decade of this century, immense government spending in the US, coupled with China's explosive economic growth during the same time created the circumstances by which China owns a large chunk of the debt. The government wanted to spend spend spend, and there was someone willing to buy our debt instruments so we could do it.

In the alternate universe where China never became the economic powerhouse it currently is, another government or coalition of governments will have surely stepped in to purchase said securities when the US was willing to sell it.

See, I understand that our position is our own fault. We spent like drunken sailors for a long time. And the trend shows no signs of slowing. The real point is they can and will be exerting domestic policy pressures from now on. Part of the reason the health care bill is not bigger and more pork filled is that the Chinese told Obama that a full public option was not something they were comfortable with. They now have a permanent seat in the White House influencing our every move. That is the insidious part of this.

[Fencer of Alexander]

Cruzandercerberus, on 31 December 2009 - 09:06 AM, said:

See, I understand that our position is our own fault. We spent like drunken sailors for a long time. And the trend shows no signs of slowing. The real point is they can and will be exerting domestic policy pressures from now on. Part of the reason the health care bill is not bigger and more pork filled is that the Chinese told Obama that a full public option was not something they were comfortable with. They now have a permanent seat in the White House influencing our every move. That is the insidious part of this.

There are no separate classes of debt instruments sold to foreign treasuries (they buy the same types a US citizen would), hence as a holder of a treasury bond, the Chinese, European, and Japanese governments have the same rights (in regards to the terms of the bond) as a US national purchasing the bond. These are spelled out in bond covenants, which for all bonds will state that the holder of the bond is entitled to a semi-annual coupon payment of x% and payment of the face value at maturity.

Also, per the covenant a bond holder has no rights in regards to dictating how an organization should be run or managed. A shareholder on the other hand has "voting rights" because a share of stock is inherently riskier than an issue of debt - hence they need to be rewarded for taking that risk. The only thing a bond holder has a say in, is that it has priority over the issuer's assets in case of bankruptcy and liquidation. So even if China owned 100% of the US national debt, it is not legally entitled to dictate how another government is run, as long as the US government remains solvent. Of course, nothing prevents them from providing their opinion on international forums.... they have been doing that for years: "Don't interfere with ROC & PRC relations", "Don't talk to the Dalai Lama", "Don't sanction North Korea." etc.

It's all just words at the end of the day, and the US is not legally committed to do anything, as such are normally the terms of debt/bond covenants.

The real question is how close the government is to serious financial distress. Currently about 20% of the federal budget will be allocated to interest expense related to the debt. This is serious in that 20% is a fairly big chunk, but it's not the end of the world or an irreversible situation. As a point of reference, the Clinton surplus was $550 Billion, which if completely applied to the current debt would cover up a nice portion of either Japan or China's share of US debt securities. (Note: I'm aware that this money has long since evaporated)

If the ownership of US Treasury Bills were so legally powerful, the various right/left interest groups within the US would have been the majority debt-holders by now

[Cruzandercerberus]

Okay then I'll put it this way. If tomorrow they chose to sell our T-bills and liquidate the billions and billions of literal US dollars they hold...our currency would devalue 200-300% instantly AND drive up the cost of borrrowing at least one basis point (probably 2 or 3) causing almost immediate default.

Agree or Disagree.

Bond Holder rights are irrelevant to my point. The lack of representitve government is important because it's the indicator that they might just be serious about pulling the trigger. You also suppose that China gives a rats ass if they people are eating. They would find enough food for the workers to keep working and let the unproductive die...if anything it would help them. And it certainly isn't anything they haven't done before.

[Zombuh]

Cruzandercerberus, on 31 December 2009 - 01:15 PM, said:

Okay then I'll put it this way. If tomorrow they chose to sell our T-bills and liquidate the billions and billions of literal US dollars they hold...our currency would devalue 200-300% instantly AND drive up the cost of borrrowing at least one basis point (probably 2 or 3) causing almost immediate default.

Agree or Disagree.

Bond Holder rights are irrelevant to my point. The lack of representitve government is important because it's the indicator that they might just be serious about pulling the trigger. You also suppose that China gives a rats ass if they people are eating. They would find enough food for the workers to keep working and let the unproductive die...if anything it would help them. And it certainly isn't anything they haven't done before.

Cruzandercerberus, on 27 December 2009 - 07:08 PM, said:

The main reason they hold so much of our currency is to allow them to artificially depress the value of their currency.

Agreed. China has a bit at stake here though. While American currency would devalue their currency would increase in value tremendously against it. So many of their exports would be worthless to Americans since their prices would sky-rocket due to the dollar weakening. If no one buys, they'll cut costs at their Chinese factories to stay profitable, if possible. Pink slips a-plenty. The loss of those jobs would hurt China's expansion, which they obviously don't want. You've kinda alluded to this in one of your previous posts, I just think it's a bigger problem to China than they'd admit.

[treelo]

Strange, I'd have thought a single party state known as the People's Republic of China ruled by the Chinese Communist Party would have definitely qualified as a communist state. I suppose that since they are now making everyone look like chumps they must have magically transformed their political beliefs to Capitalism, obviously the only way such a travesty could occur.

[Cruzandercerberus]

A communist state is one in which all wealth disparity has finally eroded and a truly classless system has developed where goods are produced for use rather than for profit and society is organized entirely along egalitarian lines with no exploited or exploiters.

Despite the fact that this has never been achieved (though North Korea has really, really tried), clearly this perfectly describes China.

They could call themselves the martian's republic of pacifist tulips if they like,wouldn't make them so. those government behaviors that don't fit the definition of communist aren't deviations from the normal, those are normal. The behavior is their business, but they don't get to commandeer the language outside their area of sovereignty.

They are state capitalists. China Inc.

[Fencer of Alexander]

Cruzandercerberus, on 31 December 2009 - 01:15 PM, said:

Okay then I'll put it this way. If tomorrow they chose to sell our T-bills and liquidate the billions and billions of literal US dollars they hold...our currency would devalue 200-300% instantly AND drive up the cost of borrrowing at least one basis point (probably 2 or 3) causing almost immediate default.

Agree or Disagree.

Bond Holder rights are irrelevant to my point. The lack of representitve government is important because it's the indicator that they might just be serious about pulling the trigger. You also suppose that China gives a rats ass if they people are eating. They would find enough food for the workers to keep working and let the unproductive die...if anything it would help them. And it certainly isn't anything they haven't done before.

The nuclear option scenario of threatening to dump every penny of its $600 Bn holding is unrealistic and a poor chip to bring to the table. Although a government or group of governments can certainly pony up the cash to buy that many debt securities, no one would realistically do it. Even if a magic buyer is out there willing to purchase every single note or bond that China holds, they would only be able to do so at a substantial discount of the original face value – causing the value of China’s reserves to decrease.

Given the not so stellar state of the US economy, China would have to make an impossibly good case to convince any other central bank to purchase that many securities at once. It is my view that they’re pretty much just stuck with them, as there aren’t any better alternatives that provide the same low level of risk.

You could of course argue that China doesn’t really care, and it’s just out there to undermine everyone even at the risk of hurting its own money & investments and destroying the global financial infrastructure that was responsible for its own recent upsurge of wealth... which of course is an opinion you’re entitled to. The more rational prediction would be for all the major US debt holders will now start to diversify and invest elsewhere, which is something that China has already started doing.

I will say that China is doing many things to undermine US influence in the world... but buying bonds is just not one of them. How about instead of worrying who owns what % of the debt, and predict what another country will do, let’s just focus on reducing the debt and remove all the guess-work involved? It almost seems like some people want the whole system to sink so they can indulge in some sort of post-apocalyptic Red Dawn Modern Warfare 2 fantasy 2012 RPG scenario.

[Cruzandercerberus]

Clearly them selling off everything in one massive dump is worst case. It is however, not their only option. With the state of the U.S. economy less than stellar, any hit it takes is going to be felt on main street. And is a political land mine for those in office. If you think china won't use that fact to throw their weight around on the world stage I suggest you read more RCP.

[Fencer of Alexander]

Japan is officially the #1 holder of US debt instruments (again). Link.

Would have thought that given the extreme "I'm terrified of Chinese people" mentality of most in the Western hemisphere, that this would have made bigger headlines but it just kind of slipped past. I guess China was secretly trying to torpedo the US economy, but it didn't really work out - some economists are telling me that this is because they're trying to diversify their holdings, but I just don't understand what that means and I just don't buy that. /sarcasm off.

Per the FT, approximately $34.2B of instruments were dumped by the Chinese. Now, we can go back to spending to our heart's content as the "good Asians" have the ball again! But wait... could the land that brought us Haruhi, moe, Yuri Fanservice, monster tentacle theater, and self-propelled hybrid vehicles be trustworthy to be our #1 lender?

Back on planet Earth, and on a more serious note, it's sort of embarrassing that Geithner is trying to reassure China that the US is a good investment lol.

This post has been edited by Fencer of Alexander: 26 February 2010 - 06:37 PM

[Cruzandercerberus]

Gee, now why would they do something like that?

http://www.washingto...0013000508.html

Quote

The Obama administration announced the sale Friday of $6 billion worth of Patriot anti-missile systems, helicopters, mine-sweeping ships and communications equipment to Taiwan in a long-expected move that sparked an angry protest from China.

In a strongly worded statement on Saturday, China's Defense Ministry suspended military exchanges with the United States and summoned the U.S. defense attache to lodge a "solemn protest" over the sale, the official Xinhua news agency reported.

"Considering the severe harm and odious effect of U.S. arms sales to Taiwan, the Chinese side has decided to suspend planned mutual military visits," Xinhua quoted the ministry as saying. The Foreign Ministry said China also would put sanctions on U.S. companies supplying the equipment.

This post has been edited by Cruzandercerberus: 26 February 2010 - 11:16 PM

[MrReinhardt]

Battlefield China?