Originally posted by: ericlp
Ummmmmmmmm.... What is so traditional about 9.338 trillion? Doesn't make much sense to me...
Originally posted by: ProfJohn
Actually... I don't think we 'borrow' money from them in the traditional sense.
Originally posted by: Nocturnal
Can anyone point me to some reading material as to why we borrow so much money from other countries like China and Japan?
We sell bonds and anyone is free to buy them, including China or Japan. If we didn't sell bonds to other countries our cost of borrowing would go up which would be bad. We should be happy that these countries are willing to invest their money in our government.
Of course I'd be happier if we didn't have to sell any bonds, but that's another thread
UMMM btw I should have read rchiu's comment first
We SHOULD be and WE ARE happy they continue to loan out billion to the USA. The problem as the dollar gets weaker and currency becomes devalued ... They will stop dishing out $$ to us and start to want it back.. It is already happening but on a small scale so far. We are still a good place for a secure investment (at the moment)....
PJ's post seemed to try to make some semantic point but only distract from the issue.
As for the US being a good place for a secure investment: there are investments and there are investments; buying shares of Apple is one thing, a foreign government buying another $100B of our bonds is another. From a layman's view, it seems to me that it's only a matter of time before there are big problems, and that the time line roughly follows this:
1. The period where the US is actually a good investment, declining to the line where it isn't.
2. The period where the US is not a good investment looking only at the investment, but it's so central to the economic infrastructure that it's a net positive to keep propping the US up with more, increasingly bad, investments, because of the benefits to the stability that doing so provides.
3. At some point, it's clear that the US is going to have a coming crash with the investments stopping, and that those who get out first will lose the least. So, there will be an incentive to get out early, and someone will trigger the exit from owning US debt, and like the house of cards it has become, it'll crash, badly and fast. It'll also be somewhat without warning, because the trigger will likely be some government somewhere trying to get out early, not some event. We can look at the crash of the Great Depression for some clues.
The Great Depression, too, had some early problems, and the financial industry propped up by the economy raced to 'fix' the problem by putting more money into available credit, even though it was setting itself up to lose that money on bad loans, but that only delayed the crash by months. I think any sane government today is making plans with alternatives to the US for investing, and the existence of those alternatives will help smooth the way for moving from step 2 to 3 above.
We're not there yet - if the US crashes today, nations will suffer a lot - but as China increases its own wealth, develops its own markets, the impact of a US crash on China will be reduced, even in its strategic interest perhaps, and why would they continue to throw away money on our economy which offers little but, even without defaults, low returns/inflation coming up, much worse than the better uses they have for it?
Note Warren Buffet the last couple years saying for the first time, he's getting into foreign currencies... that got him a 17% return since Jan 2007 on the Euro alone.