Who owns all this world wide debt?

Discussion in 'Business & Economics' started by desi, Mar 6, 2010.

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  1. desi

    desi Valued Senior Member

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    Debt is rampant around the world and we have to do something about it or it could all go under... So who is holding the notes on all this debt? If its as bad as they say shouldn't we just call it a mulligan and start over?
     
    desi, Mar 6, 2010
    #1

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  3. Pinwheel

    Pinwheel Banned Banned

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    Wouldn't that solution essentially reward the feckless and punish the prudent - who chose not to load themselves up to thier eyeballs in debt?
     
    Pinwheel, Mar 6, 2010
    #2

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  5. Carcano

    Carcano Valued Senior Member

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    Carcano, Mar 6, 2010
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  7. desi

    desi Valued Senior Member

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    Debt comes from borrowing. The way borrowing is done these days is banks lending money they create out of thin air.

    Its not a case of prudence versus feckless so much as legalized extortion.
     
    desi, Mar 7, 2010
    #4
  8. jmpet

    jmpet Valued Senior Member

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    China holds most of the debt. And they did this by working themselves raw to the bone manufacturing pointless shit we do not need en masse. Sorry folks- the days of spending the weekend mall shopping are over.

    Why should China forgive this debt? They earned it. They earned it at 19 cents an hour times a trillion hours.

    Think about that the next time your kid buys a happy meal and gets a free "made in China" toy with it.
     
    jmpet, Mar 7, 2010
    #5
  9. desi

    desi Valued Senior Member

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    Did they earn it? Does corporations using slave labor in China to maximize profits translate to them deserving to profit from it? That is like saying the slave plantations in the South from a few hundred years ago deserved every bit of profit they earned from hard work.
     
    desi, Mar 7, 2010
    #6
  10. Westy

    Westy Registered Member

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    First of all, only about 25% of our Federal Debt is held by foreigners, the rest is held mostly be me and you. When you buy a bond, or a bond fund in your IRA you are buying a little piece of US Government Debt. The rest is held mostly by major US Banks and Rich people in the US. The one thing rich people are afraid of the most is not being rich anymore, and they hold a lot of their wealth in US bonds as they are the safest return in the world (literally). Basically its the absolute risk free asset because if the US defaults on its debts its basically the end of the world as we know it, and it doesn't matter.

    Second, China does hold a large portion of our federal and non-federal Debt, (corporate or state debt). As throughout the last decade they bought anything that was considered investment grade (bbb or better) which was a lot of the securitized mortgages that we all defaulted on over the past 3 years(so they got screwed just like we did). In the end its to our advantage to have China hold a large portion of our debts, as if they ever try and start a war or anything, we can just withhold our payments on our debt to them. Its a pretty good deal for us, thus via game theory we are protected from a war with China.
     
    Westy, Mar 16, 2010
    #7
  11. Nasor

    Nasor Valued Senior Member

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    No, they don't. Not even close. But hey, don't let the real world get in the way of your little rant...
     
    Last edited: Mar 16, 2010
    Nasor, Mar 16, 2010
    #8
  12. Billy T

    Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    True if you just bought a $1000, 10 year US Treasury bond at a discount you can be certain that ten years from now the US government will give you the promised $1000, but it may not buy a cup of coffee. Because of the rate at which dollars are now being printed, I consider that a significant risk. To some extent that is why many people with money are investing in economies that are more sound than the US economy, like Brazil's is.
    I am not sure these numbers are correct. One does not normally think of the dollar bill in your pocket as a bond, but in some sense it is. I.e. it is a certificate of US government debt. (That is especially clear now that dollars are being rapidly printed to cover the deficits.)

    I happen to know that there are many more dollars outside of the US than in the US. One can not be sure but the Russian mafia and drug dealers total alone may be greater. What I do not know is how the total of these "dollar bonds" compares to the total of finite maturity Treasury bonds.
     
    Last edited by a moderator: Mar 22, 2010
    Billy T, Mar 22, 2010
    #9
  13. Westy

    Westy Registered Member

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    Hi Westy and welcome to sciforums.
    There is no difference on the value of the dollar if the Treasury/fed combo issue 1000 newly printed dollar bills or a $1000 T-bill. Both cause the value of pre-existing dollars to decrease and both are more debt issued by the government. You seem to stating that debt can not be created when one is under a fiat money system, but I am sure you do not mean that. Why do you think the newly printed dollar is not new debt, just as the newly printed T-bill. Only difference I see id that the new dollar is immediately a claim on goods and services and the T-bill only when it matures.
     
    Last edited by a moderator: Mar 28, 2010
    Westy, Mar 28, 2010
    #10
  14. jmpet

    jmpet Valued Senior Member

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    They have the power to destroy the dollar by flooding the world with them- they pwn us. WAKE UP.
     
    jmpet, Mar 28, 2010
    #11
  15. Pinwheel

    Pinwheel Banned Banned

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    Problem is I missed the gold train.
     
    Pinwheel, Mar 28, 2010
    #12
  16. WillNever

    WillNever Valued Senior Member

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    We could just ignore it and not give China anything.

    Please Register or Log in to view the hidden image!

     
    WillNever, Mar 28, 2010
    #13
  17. Pinwheel

    Pinwheel Banned Banned

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    But then who will make all our plastic crap.
     
    Pinwheel, Mar 28, 2010
    #14
  18. desi

    desi Valued Senior Member

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    India
     
    desi, Mar 29, 2010
    #15
  19. Fraggle Rocker

    Fraggle Rocker Staff Member

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    2007 is the latest year for which I could find the figures. http://www.msnbc.msn.com/id/17424874/ In that year the top four foreign owners of the U.S. national debt were:
    • Japan: 8%
    • China: 5%
    • U.K.: 3%
    • Oil exporting countries in aggregate: 1%
    • All other foreign countries: 8%
    Other categories of large holders:
    • State and local governments: 5%
    • Individual investors and brokers: 5%
    • Pension funds: 4%
    • Mutual funds: 3%
    • Holders of U.S. savings bonds: 2%
    • Banks and credit unions: 1%
     
    Fraggle Rocker, Mar 30, 2010
    #16
  20. Fraggle Rocker

    Fraggle Rocker Staff Member

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    I presume that you're referring the the Multiplier Effect. When you deposit $100 in your bank account, the bank only retains a percentage of it in cash or equivalent, and loans the rest out to someone else. That person puts his money in a bank account, and his bank loans out the same percentage of it to someone else. If that percentage is 25% then every dollar eventually becomes four dollars; if it's 20% then every dollar becomes five dollars, etc.

    In the U.S. that percentage rate has been controlled and adjusted by the Federal Reserve for almost a century, so it is not the banks who decide what is a reasonable reserve and what is "thin air."

    Money is nothing more or less than an accounting record of surplus productivity. The only reason we have money is that we don't have to trade our labor directly for food in the company cafeteria and rent on a company apartment. We produce more wealth than we consume, so we have some left over: surplus productivity, as measured by the amount of money we have.

    We can go on a hedonistic binge and trade all of our surplus productivity ("spend all of our money") for champagne, alligator shoes and tickets on the ski lift. Or we can turn it into "capital" and invest it, by starting a business, loaning it to someone who is starting a business, buying stock in his business, or putting it in a savings account and letting the bank invest it for us.

    The specific percentage dialed into the Multiplier Effect by the Federal Reserve is intended to help guide us into a good balance of consumption versus investment.

    This is tricky. If they tighten up and there's not enough money in circulation, people won't invest because they have to spend it all on food and rent. But if they loosen up and leave too much money in circulation, people will feel like aristocrats and spend it all on videogames and sportscars. You have to find a very delicate balance that inspires people to invest.
    The economic crisis in the United States is very much a problem of prudence, not one of extortion. The banks did not threaten to kidnap our children if we refused to take out a mortgage. On the contrary, they begged us to take out those mortgages, offering generous incentives such as forgiveness of a poor credit rating and negative amortization for the first five years.

    They built up our self-confidence by telling us that our earning power was greater than we thought it was, and that our homes would appreciate so rapidly that in a few years we could sell them at a huge profit, pay off the (now inflated) mortgage balance, and still come out ahead. Who's going to argue with a professional banker who assures her that her financial situation is much better than she thought it was, and she can afford to buy a house?

    Of course we know now that the bankers were stupid and had begun to believe their own propaganda. Twenty years ago college kids who could not make change for a dollar without a calculator told me that they were going to become investment bankers. Guess what? They did! But most people didn't know that then. Even the bank examiners, employees of the Comptroller of the Currency, a direct appointee of the President, didn't think to examine the banks' loan practices, because they had never had to do that before.

    There's plenty of blame to go around. The banks apparently had so much money to lend that they practically went out in the street offering loans to hobos and winos. Knowing about the Multiplier Effect, what does this tell us? The Federal Reserve was not doing its job, and was allowing too much money to be in circulation. They needed to tighten up the percentage of deposits that banks were required to keep in reserve.

    Notice that two of the major players in this disaster were government agencies.
     
    Fraggle Rocker, Mar 30, 2010
    #17
  21. Billy T

    Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    17 is a great post Fraggle. I have put a link to it in the only sticky thread of B&E with recommendation that those who are not already well versed in US economic system and causes of it current difficulties read your post. You make some complex things very clear.
     
    Last edited by a moderator: Mar 30, 2010
    Billy T, Mar 30, 2010
    #18
  22. Nasor

    Nasor Valued Senior Member

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    Look, you made a factually-incorrect statement when you claimed that China owns most US debt, and I corrected you on it. Even if true that China could hurt the dollar by dumping it, that doesn't change that fact that you were wrong when you claimed that China owned most US debt. Come to terms with the fact that you were wrong and move on.
     
    Nasor, Mar 30, 2010
    #19
  23. Billy T

    Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    To get our debt typically the owners of it have exported / sold something we want to us. Thus the current increased in our debt held by various foreigners will closely track the dollars they earned with exports (if they don't spend them as fast as they earn them). I don't have data on the exports just to the US, but the US is a large buyer so the global totals below are similar.

    2009 exports in Billions of dollars by
    China........1,202
    Germany ...1,121
    USA .........1,057
    Japan .........581
    Holland........499
    France .......475
    Italy...........405
    Belgium ......370
    S. Korea .....364
    U. Kingdom..351
    Above are the top 10
    No.14, Brazil exported 153.

    Data from page B12Folio de Sao Paulo, 27March2010.

    Japan holds 8% of US debt and China only 5% mainly because Japan has been a big exporter to the US for some decades and China has been a rapidly growing exporter to US - just claimed the number one global exporter spot last year. Another reason Japan is main owner of our debt is they don't spend it like some of he Mid East oil exported do. Japan is a somewhat static country and the mid east oil exporters are more like Dubai. - Many actually have net debt!

    I think Japan will continue to own more of he US debt than China for at least a decade more as China is spending dollars to lock up resources it will need 30 years hence, at more than a billion dollars / month rate now. Also, in case you have not noticed, Toyota is in a sales slump, but it is not likely to be permanent. Japan has huge sales to China, everything from top end electronics to steel. That takes dollars from China and gives them to Japan.
     
    Last edited by a moderator: Mar 30, 2010
    Billy T, Mar 30, 2010
    #20
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