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View Diary: “Thank God I had a buddy at Burger King who could help me out” (274 comments)

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  •  Or not (1+ / 0-)
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    The US is not going to default and China has no interest in having this happen.

    •  The US is not China's largest trading partner (6+ / 0-)

      It isn't second either.
      Their largest export market is Europe. Then its Japan.
      We are 3rd for China, with the rest of easy Asia close behind.

        So when people start talking about how China can't let America go down under any circumstances, think again. We aren't as important to China as people think.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Thu Jun 07, 2012 at 09:34:00 AM PDT

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      •  Depends on how you measure it (0+ / 0-)

        Since the EU is not a nation, the US is the largest national trading partner of China and the US is considerably ahead of Japan as a trading partner. Taken as a whole, the EU is a larger partner but this is a fiction, since the EU is not an entity that imports things, its invidual members do.  Aside from that, this assumes that there will even be an EU in the future.  Regardless of how you look at things, none of this means China has an interest and won't be hurt by a US default should it happen.

      •  US debt is still very popular (2+ / 0-)
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        ozsea1, Dr Swig Mcjigger

        First of all, right now, investors are so eager to hold US Government debt that they've driven yields on Treasuries to some of the lowest levels they've ever been. At the bottom of the recession, effective yields were actually negative for a brief time: in other words, investors were paying the US to hold their money.  Investors might only be making the best of a bad situation, but they didn't stop when S&P downgraded us.  The underlying strength of our economy and the creditworthiness of the government (based on the ability to tax that economy) is still judged to be pretty sound.

        China and the rest do worry about the long-term value of their Treasury holdings. But this has more to do with our unwillingness to raise taxes than with total spending; the debt ceiling fight didn't impress anyone with a show of resolve, at least not good resolve to protect the value of Treasury bills.  However, the last thing they would want to do is trigger a global flight from US debt.  The paper would lose value much faster than it could be sold off.

        Besides, hundreds of billions of dollars worth of Treasuries losing a good chunk of their value overnight would punch a very big hole in public and private balance sheets all over the world.  The economy is elastic in a way: punch a big hole in it, and it shrinks in order to close up the hole.  A practical default by the United States would put the world into "giant sucking sound" territory as all that capital/collateral just disappears and money gets pulled out of everywhere else to keep budgets in the black.

        •  US Debt downgrade.....and they said it could never (0+ / 0-)

          happen........Prospects for the future?......According the piece addressed by this diary, ungood......According Boehner & Co.......fasten your seatbelts.

          •  we got downgraded and no-one with money cared (2+ / 0-)
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            ozsea1, Dr Swig Mcjigger

            The downgrade had no significant effect on Treasury yields - a proxy measure of demand for Treasuries where low is good - which have continued to hover a little above zero.  No-one thinks that the US government is a bad investment and they don't think it's in danger of going bad anytime soon.

            I'm not trying to downplay the long-term sustainability issues here, but I think there's some hysteria around this issue.  No-one - not China, not Japan, not Europe, and hopefully not our own government - is going to destroy the value of Treasury bills and trigger a fresh round of global economic crisis out of spite. China's position on the matter is not "You pay now!" and never has been; they want to see the long-term investment value of their Treasury holdings protected. They want progress on getting our debts under control, but they're willing to give us time so that our progress is sustainable; they don't want it vulnerable to politics and they don't want us crashing our own economy in the process.

        •  only due to europe imploding (1+ / 0-)
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          math shows this can only end one way ... badly.

          Either deflation or inflation is going to wreck this world economy.  There is no good options here

          Bad is never good until worse happens

          by dark daze on Thu Jun 07, 2012 at 11:01:58 AM PDT

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          •  some inflation would be a good thing right now (2+ / 0-)
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            ozsea1, Dr Swig Mcjigger

            Even Krugman thinks so.  Part of the problem is that governments are so mindlessly afraid of inflation for one reason or another that they're going too far in the other direction: teetering on the edge of a deflationary spiral - i.e. a second Great Depression worthy of the name.  Some rich people benefit from deflation, but only in a "better to reign in hell" sense.

            Enormous amounts of money have simply disappeared.  A shrinking money supply means prices go down, which is the definition of deflation.  Less money means less buying: also deflationary; austerity - deliberate budget cuts - also mean less buying.  The private sector sitting on its hands, refusing to hire people or buy stuff because consumer demand is so weak: also deflationary.  High unemployment and people with jobs cutting back on purchasing: also deflationary.

            The trend is deflationary, so inflationary policies - within reason - would actually make the economy healthier.  Businesses can work with rising prices in a way they can't with falling prices, because falling prices mean less money to be made period.  If the private sector is too paralyzed by fear to do its job, then government spending - good old Keynesianism - is the only option.

            Oh, but then government debt is going to get bigger and the bond vigilantes are going to attack our credit rating!  Even if these bond vigilantes exist - which for the USA they don't - policies designed to appease them at the cost of the economy as a whole is like auctioning off an empire to raise money to pay off a band of horse raiders.  They're not the biggest threat right now.  Yes, Keynesianism is supposed to be counter-cyclical: raising taxes and cutting spending is what you do when the private sector is booming and the economy doesn't need government support.  We don't have the discipline to do that, but the other side of the equation - deficit spending to keep the economy functioning when the private sector is paralyzed is still valid and necessary.

            No matter how bad our debts might be, the fact remains that no-one can cut their way out of a recession, and trying to do so is actually makes your long-term prospects worse.  In a recession, short-term policy must be inflationary, and in a depression, medium-term policy must also be inflationary.  Only once the economy is able to run strong under its own power do you have the luxury of paying down debts.

            •  either way we are screwed (0+ / 0-)

              I agree with your points, as also some inflation would help the conservative saver.  For the last several years there are no safe places to place your money and earn any type of interest.  Its gamble in the ponzi market or no yields for you. ( Sort of the Feds plan actually)

              But the real problem is, the incredible debt loads that countries need to service just will not allow any type of inflation...ever.  Look at Europe, a 7% yield is the death knell over there. 7% is not historically that high, now it will collapse a country.

              The game is over, The debt has checkmated us, just because we are trying to play the final moves out, doesnt change the outcome.

              Bad is never good until worse happens

              by dark daze on Thu Jun 07, 2012 at 11:36:55 AM PDT

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              •  then it's time for some creative thinking (0+ / 0-)

                This is a classic catch-22.  Austerity will only make things worse by depressing economic activity, which does make you a bad investment, which makes it harder to borrow money and/or attract investment.  However, the bond vigilantes will come after you if you try to stimulate your economy by spending money you obviously don't have, lowering taxes, etc., which also makes it harder to borrow money ... but perhaps not necessarily harder to attract investment.

                There's an assumption here that private debt markets are the only place where governments can go to borrow money.  I'm not convinced that's true.  WWII was financed in part by war bonds; regular people bought them and the government paid them back with interest after a fixed term.  Also, lots of times in the private sector the money from banks and/or investors is only made available once a convincing case for the profitability of a planned venture is made.  Governments could try something similar and think up a big plan - not for a goddamn bankruptcy auction where the world comes in to pick the corpse clean, but to expand, diversify, and generate many opportunities for productive economic activity that would justify putting your money back into places like Greece and Spain - and say: "Look, we can do this.  We want to do this.  You want us to do this.  All we need is the money."

                No-one's making any progress playing by the regular rules here, much less by martyring themselves to protect big banks, and economic collapse is not a good outcome.  The villains here are the people eager to kill the goose rather than wait for it to lay some more golden eggs.  It's their conventional wisdom that needs challenging.  People are talking like everywhere in Europe that's not Germany has become Somalia: a place where no-one in their right mind would want to live or do business, and these countries really aren't helping by smothering their own economies in order to keep their credit ratings up.

                To those who say the New Deal didn't work: WWII was also government spending

                by Visceral on Thu Jun 07, 2012 at 12:18:26 PM PDT

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                •  but your forget (0+ / 0-)

                  we basically already did that, and now the worlds governments are loaded with debt, so much debt that it can never ever be repaid without inflating fiat to become almost meaningless.

                  Debt is the elephant in the room. It makes it mathmatical impossible to do anything.

                  World either goes through deflation or inflation or default. My guess it will be default, only problem is you need ww3 to pick who defaults.

                  It ends ugly, but then again this society was never sustainable to begin with.

                  Lets just hope it is replaced with a better one and not some quasi tech police state, which would be my guess as to what comes next.

                  Bad is never good until worse happens

                  by dark daze on Fri Jun 08, 2012 at 07:24:49 AM PDT

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        •  Our debt is number one! (1+ / 0-)
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          The most desireable of all! Or you could put your money in a mattress.

          •  is this really so hard to understand? (0+ / 0-)

            Investors aren't worried about Washington defaulting or inflating.
            Treasuries aren't doing much better than a mattress because investors all over the world see the US as the least fucked up country right now.  If we were in as much danger as the conservatives say we are, then yields on Treasury bonds would not be near 0%.  In this context, low yields are a good thing: A) investors think their money is safe and so they aren't demanding a high potential payoff to justify the risk and B) we don't have to pay them much extra interest when we do have to pay them back.

            Our creditworthiness is not in jeopardy, if only because Washington could solve it very easily: cut military spending, socialize health care, and raise taxes on the rich.  It's a political problem not an economic problem because our economy is huge and Congress has [theoretically] unlimited power to tax it.  This is why no-one - not China, not the bond vigilantes - has come after us yet.

            Our debt burden is a long term problem and is mainly related to the above.  Our short term problem is a weak economy: a vicious circle of low demand and high unemployment.  The connection between the two is that a weak economy makes it harder to service debt by A) decreasing tax revenues and B) strengthening demand for social services like food stamps, unemployment, Medicaid, etc.

            But even that demand for social services is negligible compared to things like military spending, and we wouldn't even need to repeal the Bush tax cuts completely to cover the uptick in relief programs.

            To those who say the New Deal didn't work: WWII was also government spending

            by Visceral on Thu Jun 07, 2012 at 01:19:16 PM PDT

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