Economics Questions

Re: It Does Make Sense For China to Buy US Debt

Joe — Fri, 06 Aug 2010 21:38:34 GMT

All kinds of rumors that China's Sovereign Wealth Fun (CIC) is making a play at Liverpool Football Club, which sounds quite strange. As a fan of the club I am not sure what to think.

Re: It Does Make Sense For China to Buy US Debt

Kenneth — Tue, 03 Aug 2010 08:46:53 GMT

It makes sense for the Chinese government officials but not for the Chinese people

Re: It Does Make Sense For China to Buy US Debt

Merlin — Tue, 03 Aug 2010 07:21:56 GMT

limitgov:

its guarnateed interest....

that's more than companies who have to make money...its guaranteed that the government will steal this money from tax payers....

nice...from an investors point of view

That is certainly true, and yet the real interest rate on these bonds, taking into account inflation, is negative. Hence it would make far more economic sense for the Chinese to just spend that money.

But of course, if you’re going to peg, you need reserves, and rather than keeping them in dollars that get you nothing at all, at least keep them in bonds. Perhaps this is indeed the trick.

Re: It Does Make Sense For China to Buy US Debt

limitgov — Tue, 03 Aug 2010 03:56:44 GMT

"Interest? What is it, 4% annually?"

its guarnateed interest....

that's more than companies who have to make money...its guaranteed that the government will steal this money from tax payers....

nice...from an investors point of view

Re: It Does Make Sense For China to Buy US Debt

Clayton — Mon, 02 Aug 2010 18:07:31 GMT

Governments are not constrained by profitability. And since governments have a large capital stock (the capital captive within their borders) which they can plunder at any time, if needed, they are generally uninterested in building large capital holdings.

It is generally put out by economists that (controlled) inflation can "stimulate" exports but it doesn't really stimulate exports. Importers from other countries choose to buy from a country with a devaluating currency because the goods are cheaper as denominated in their home country's currency (which is presumably devaluing less rapidly). What is really occurring is that the devaluating country is subsidizing its exporters on the backs of its citizens. This, in turn, acts as a subsidy of foreign consumption. In other words, when country A devalues its currency, it is essentially transferring wealth from its citizens to the citizens of every other country with which country A does business.

I doubt the Chinese government misunderstands this. This suggests there's more to yuan devaluation than meets the eye. Part of it has to do with using financial means to implement central planning (inflationary revenues go to military-industrial projects instead of consumer goods). I still have yet to comprehend the Chinese government's other motives.

Re: It Does Make Sense For China to Buy US Debt

Merlin — Mon, 02 Aug 2010 15:13:47 GMT

limitgov:

you're making interest on those bonds..paid for by the US taxpayer...guranteed.......how's that a bad investment....

Interest? What is it, 4% annually? I have this strong impression that what you actually get in the end is far less, in real terms, than what you put in. If the Chinese Central Bank just put its money under the mattress, that would be a better investment.

Re: It Does Make Sense For China to Buy US Debt

Consultant — Mon, 02 Aug 2010 15:04:17 GMT

Limitgov, I'm issuing paper today, it's for sale for 1 ounce of gold per piece. I will pay interest on them, but I also claim the right to print as much paper as I want. Don't worry though, I am a nice guy and the paper is backed by my family.

Re: It Does Make Sense For China to Buy US Debt

limitgov — Mon, 02 Aug 2010 14:59:36 GMT

"I can hardly think of a worse investment than US bonds."

you're making interest on those bonds..paid for by the US taxpayer...guranteed.......how's that a bad investment....

Re: It Does Make Sense For China to Buy US Debt

Merlin — Mon, 02 Aug 2010 07:59:08 GMT

I can hardly think of a worse investment than US bonds. China has no economic gains purposes in mind. What they want s to leverage the US into doing whatever they want, by threatening to bankrupt it should they displease Beijing. Man, if Taiwan isn’t supplied some nukes fast, it’ll be a goner and the doctrine of regional independence will take a big, big hit.

Re: It Does Make Sense For China to Buy US Debt

limitgov — Sat, 31 Jul 2010 15:44:27 GMT

"China has never made a penny on the interest. They extend loan faster than they take in payments."

are you being serious? where is the evidence for that? that's exactly what I'm looking for....

Re: It Does Make Sense For China to Buy US Debt

Conza88 — Sat, 31 Jul 2010 05:14:42 GMT

"that's quite the safe game....."

That's what King George III and Louis XVI said.

Re: It Does Make Sense For China to Buy US Debt

Caley McKibbin — Sat, 31 Jul 2010 05:11:13 GMT

China has never made a penny on the interest. They extend loan faster than they take in payments.

Re: It Does Make Sense For China to Buy US Debt

limitgov — Sat, 31 Jul 2010 04:37:37 GMT

"It's a gamble on whether there will be a revolution or not. If there is, they ain't seeing a penny. Nor should they."

that's quite the safe game.....

Re: It Does Make Sense For China to Buy US Debt

limitgov — Sat, 31 Jul 2010 04:36:47 GMT

"it hinges on whether you think the value of the dollar will plummet (further)"

unless hyperinflation comes about....its a good investment...they are making interest money off the US tax payer....pretty good interest....

sounds good to me...

Re: It Does Make Sense For China to Buy US Debt

Conza88 — Sat, 31 Jul 2010 03:33:50 GMT

It's a gamble on whether there will be a revolution or not. If there is, they ain't seeing a penny. Nor should they.