hi. let's say we owe China 1 Trillion dollars. litterally how do we pay them back, in what form? do we hand them american cash? a check? gold?
another question. when they loaned us the money in the first place, in what form was it? did they hand us chinese curency? write us a check? hand us gold?
i have always wondered how this all worked
Comments
A country's currency is valued by its national assests and its Gross Domestic Product.
In the simplest sense a Canadian dollar has more worth than an Australian one cuz Canada exports more per year than Australia.
To have a strong currency a nation must export more than they import. Importing more than a nation exports will weaken a currency.
Currently, China exports more to the US than the US exports to China. This is why the US dollar is weakening and the yuan is gaining in value.
Trade debts determine the international value of a currency.
National debts are just made up numbers by greedy banks and mean nothing. In America the current national debt is $1.5 Quadrillion, however there has only ever been issued into circulation $38 trillion worth of cash. That means for every $38 you spend you owe the banks $1500. As you can see it is mathematically impossible to pay back but it doesn't stop the banks from running the debt-slavery scheme and creating depressions when they "call in the loans".
Take an afternoon and watch these films. The insight gained is amazing.
Banks Versus the American Dream
http://www.youtube.com/watch?v=atmVLBrON60
The Money Masters.
http://video.google.com/videoplay?docid=-515319560256183936&q=The+money+changers&ei=Zd4QSMjvB47YqAKQtJmzBA
hi. let's say we owe China 1 Trillion dollars. litterally how do we pay them back, in what form? do we hand them american cash? a check? gold?
another question. when they loaned us the money in the first place, in what form was it? did they hand us chinese curency? write us a check? hand us gold?
i have always wondered how this all worked
The problems with China are as follows...
Beijing's Secret War On America -
How China Expects To Win
www.agora-inc.com
3-6-4
From Danny Chaplin
3-6-4
www.rense.com/general50/bej.htm
Damn......That one one heck of a C&P.......My solution to deal with them is simple other than nuking them off the face of the earth if it ever comes to that. Let every country that will do this and that is don't let them import any of their junk in your country. I've not seen one thing coming from that country we can't produce ourselves. It might make the corporate powers mad that use their cheap labor but who really gives a flying you know what?....I sure in the hell don't. If no one allows their junk to be imported what do you really think they can do about it? We and other countries could cripple their economy and send them back into the stone ages. Considering how the rest of the economies of the world are doing I doubt if things would be much worse. We could reinvent our economy with real demand for products instead of buying junk that is imported by the rich.
When 2 nations allow goods to trade across their borders, Freedonia ships widgets to Sylvania.
That ship, when it offloads those widgets recieves payment of some form. Usually some other good, wine, which they return to Freedonia and sell their for a profit in Freedom dollars, or more goods, which they take back...
But in modern global trade, the way it works is the Saudis, Japanese, Canadians, and Chinese ship alot of stuff - usually oil, or stuff made out of oil- to the US, in exchange for dollars.
In the case of the Chinese, they convert those goods to cash, and then buy US treasuries, or stock in US firms, like Whirlpool.
When they buy stock in companies, the idea is the Chinese can control the firm, and all future profits derived from said firm, and use that to fund their nation in the future.
When they buy govt issue bonds, they're buying the promise that in the future the US is going to repay those bonds, and what is unsaid, they're buying control of the future of the US economy.
This has worked out fine, so long as the US had a huge surplus of "innovative financial instruments" that looked, and smelled like fraudulated papers, but Goldman Sachs said were really AAA bonds, so it worked great.
This is the least dumb question. Everyone should ask themselves this one.
The way I understand it is that China has an account at the Fed. It is like a chequing account. . When we 'borrow' from China, it simply means they have bought Treasuries, which is like a savings account at the Fed, or a CD, an account that accrues interest. When we 'pay them back' we put the money plus interest back into the chequing account. That is all.
We do not owe the Chinese yuan, or renminbi. The Chinese seem to want US dollars for some reason, otherwise they wouldn't keep selling us all that crap. Since the US dollar is like a world currency, i.e. other people want it, too, the Chinese can buy stuff with their dollars from all over - oil, European art treasures, Russian prostitutes, Australian copper mines, whatever.
Saying we are 'in debt' to the Chinese is nonsensical. We do not need the Chinese gov't for US dollars. And they do not need us to have renminbi. They want US dollars so they can buy stuff with it that they can't buy with renminbi. If you had renminbi, what would you do with it? You would trade it for dollars. What else can you do with it? Buy Chinese food? So we don't want their currency.
But if the day comes that they do not want our money, then we will need renminbi to buy Chinese things. Or we will have to start making stuff ourselves again. Of course by that time the Chinese may have bought all the sources of raw material with all the US dollars we sent them. (Right now they are buying Africa.)
Damn, the man just asked how China buys U.S. govt. debt. They buy T-Bills (treasury bonds).
The U.S. buys so much from China, that China has no use for the money...except to park it in U.S. Treasuries.There is a limit to the hi-tech products they can buy from Europe.. Things we don't make, like high speed rail.
Everything we make, they make themselves.
Like any third world nation,,we export raw materials in exchange for value-added manufactured products.
The further along the road to domestic Chinese consumption China travels,,the less reliant they will be on the U.S. to keep their manufacturing base humming. The rapid shrinking of the U.S. consumer base is hastening that. At some point, they'll tear up our credit card.
The primary debate in Chinese think tanks is how to best manage the rapid decline of the U.S. to suit their own interests. "What Does China Think", Mark Leonard, Exec. Dir. European Council on Foreign Relations. It's an interesting read.
There is no sense in blaming China for what we've done to ourselves.
As for domestic national debt, Michael Hudson along with other economists has suggested that the Treasury could simply stamp several trillion dollar coins and hand them over to the Federal Reserve in exchange for U.S. debt held by the Fed. The debt would disappear, The coins would be held in the Central Bank's vault... Government has the Constitutional authority to do that. It would, however, take private banksters out of the mix of government financing. Stepping on the profiteering toes of banksters probably isn't in the cards. The Fed loans them money at near zero interest so they can buy government debt with it....Treasuries. Taxpayers pick up the tab.
The state of N Dakota is self-financing through it's state-owned bank and has the highest budget surplus in its history while the rest are plunging into insolvency. State-owned banks, and even one at the federal level, probably aren't in the cards either.
Retired Monk - "Ideology is a disease"
"Damn, the man just asked how China buys U.S. govt. debt. They buy T-Bills (treasury bonds)."
how do they pay when they buy them ?
Why would Freedonia voluntarily take money and buy US bonds? What drives them to want or need to take on foreign bonds?
It's all part of the Globalists using China as their future storm-troopers when America's debt to them goes to the "repo" point !!!!!!!!
hi. let's say we owe China 1 Trillion dollars. litterally how do we pay them back, in what form? do we hand them american cash? a check? gold?
Here is the part that really blows me away. If I am not mistaken we are still providing "aid" to China. If we are doing anything for them that has any monetary value, then we need to demand that they consider it payback. Take it off our tab.
there seems to be no clear simple answers to my questions. with every answer comes up a new question
i already know American money is based on nothing and is just a huge ponzi scheme with everyone at the bottom of the pyramid getting fucked every time a recession hits then we start the cycle over again. the only problem is this time the people at the top of the pyramid got too greedy and this may be the shit finally hitting the fan and we'll never be able to "start over" again because the game got way out of balance and the people at the top of the pyramid took way too much
but i digress, the fact that there's no clear answers to my questions is telling me that not only our economy is a huge ponzi scheme but our whole global economy is as well. our debt seems to be based on nothing. nobody can tell me how other countries pay for the treasury bills. how does the Chinese government end up holding US treasury bonds? we don't just hand them over to them do we? what are they giving us? and when the Chinese government wants to cash them in, what exactly do we give them?
seems like straight forward questions that nobody seems to know the answers to
I think the answer to your question is "nothing". I think that there is nothing physical involved in money exchange. It's all about pen strokes and key strokes. If the Chinese decide they want to cash in their bonds then it's just another key stoke on a computer. It's cyberspace economics.
When they cash in it will be represented in a negative number on an American computer and a positive number on a Chinese computer. When they buy then it's the opposite. I don't believe that there could ever be any kind of physical monies involved.
That's just my opinion, I could be wrong.
can somebody "pen stroke" a couple million into my account please ?
I will try again.
China ships $5bil in cheap plastic crap to the US, and it is sold at Malwart. Now, China through companies owned by the state, is holding $5bil in US notes, in an American account. They choose to buy t-bills in place of bringing that money home to pay dividends, or to pay higher wages.
Now, where Bush wacker is wrong, in the future, if China opts to take the money, like a free market model of traditional self interested parties would expect, then their would be a physical transfer of pallets of cash to China, or the exchange rate of China would move higher.
"how do they pay when they buy them ?"
With money. Just like tourists can convert currency nations can too, that's no problem. The Chinese government has a surplus pot of money to put somewhere and it likes the security of US Treasury bonds.
http://www.reuters.com/article/2011/09/20/us-china-us-treasuries-idUSTRE78J0BL20110920
""I will try again.
China ships $5bil in cheap plastic crap to the US, and it is sold at Malwart. Now, China through companies owned by the state, is holding $5bil in US notes, in an American account. They choose to buy t-bills in place of bringing that money home to pay dividends, or to pay higher wages.
Now, where Bush wacker is wrong, in the future, if China opts to take the money, like a free market model of traditional self interested parties would expect, then their would be a physical transfer of pallets of cash to China, or the exchange rate of China would move higher.""
so if walmart gave China the money and China handed the money over to the US to buy t-bills then why is it considered a "debt"
walmart had the money, now the US has it and china has a piece of paper
walmart had the money, now the US has it and china has a piece of paper
Fair enough. But China expects something for that piece of paper. And thanks to our ingenious flat earth economic policies, china has that piece of paper AND manufacturing plants that are increasingly capable of producing the hardware necessary to keep our military at bay, and to get their military into resource-rich regions of this planet. It's the same damn thing as the game Monopoly.
so if walmart gave China the money and China handed the money over to the US to buy t-bills then why is it considered a "debt"
walmart had the money, now the US has it and china has a piece of paper
This is another good question. It is not really debt. That's just what we call it. We talk about about the federal gov't as if it is a normal player in the economy, like a person or a business. But it is not. It creates its own money. China gets this money, US dollars, from us every time we buy their cheap crap. Then they have all these US dollars they don't know what to do with. They put it in treasuries because they earn interest, for the same reason a person would put money into a savings account. It is all done electronically. The big ships that bring the crap here go back to China empty. Or full of trash, but not cash. (We sell a lot of trash, believe it or not.) China may also use this money to buy things from overseas, like oil and other raw materials.
The Chinese gov't makes its own money, too, called renminbi, or RMB, sometimes refered to as the Yuan. You can really only buy things in China with it. That's why they try to get US dollars. You can buy things from all over the world with US dollars. For now. They use their money to invest in infrastructure and reasearch. That is why their economy is growing. They use our money to buy Africa. That is why their economy won't need us much longer.
I was asking these same questions for a few years before I figured out (kind of) what is going on and what money actually is. It is very cryptic, which is why I say these are not dumb questions. Everyone should ask these questions.
Money, btw, is not a ponzi scheme. A ponzi scheme is an investmenst that relies on new investors to pay the old investors. When new investors are not found, it collapses. That is the definition, more or less. Money is a way to keep score, a point system. The gov't cannot run out of money anymore than a scoreboard can run out of points. Where it gets tricky and turns into a mess is when banks are allowed to create credit from nothing, like fronting people the points and charging interest for it. Almost all of our money comes into existence this way. The gov't has relinguished it's responsibilty and power to create credit.
How It Works:
The US Treasury creates a debt instrument (a US Treasury Bond) and hands them to the privately-held Federal Reserve. The Treasury, through the Federal Reserve Bank of New York, holds bond auctions in which these bonds are sold on the open market. They are usually purchased, for example, by banks, foreign central banks, and the Federal Reserve itself. When these bonds are sold, the Federal Reserve creates the corresponding money associated with the bond. This newly created money is released into the system through the Federal Reserve Banks across the nation, then down to other banks, all through loans.
China currently holds $1.1 Trillion dollars* of US Treasury Bonds. Our current nation debt is $14.4 Trillion dollars. Note that China holds only 7% of our national debt. Surprising, right? Not what the corporate media and politicians have made it out to be, correct? The largest holder of US Debt is the Federal Reserve itself. Yes, that privately held institution that we pay interest to, for the “privilege” of having them create our money.
Polycarp2 is correct in that it is pretty simple, the Treasury (under its Constitutional powers) can just create the money to buy the bonds back, and then the bonds are extinguished. Done deal.
But the Federal Reserve could do it as well, for example, as comparison – the Federal Reserve recently purchased $1.25 Trillion dollars in mortgage backed securities (through what is now known as Quantitative Easing Program No. 1, QE1) without blinking an eye, or arousing any media or market attention. Note that amount ($1.25 Trillion) is more than the total debt held by China.
The US is the consumer market, and China is the production market. China and the US are currently in a beneficial relationship that is beneficial to those at the top. Tariffing imports would make this relationship beneficial to the average American, by bringing our lost production jobs back home.
*Foreign holders of debt: http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
oh, QE1 got the market's attention, all right.
True, QE1 did get the market’s attention. The market always loves new money in the money supply.
I guess my point is that the Fed, could easily buy back all of China’s bonds and the world financial system would not collapse, as most would have you believe. Currently, the Fed is buying back loads of 30-year bonds that foreigners hold through Operation Twist (the Fed’s new dollar dance).
With the dollar still remaining as the world’s reserve currency, holders of US debt are spread far and wide. Military interventions open up new markets for US debt demand. Welcome to the debt club, Libya! But the private banks of the Federal Reserve itself...the largest holders of US Debt (shhhhh …. it’s a secret).
The real scare and security threat to the US is that a foreign country is its own production floor.
When U.S. companies buy a billion bucks worth of trinkets from China, they have to convert dollars into Chinese currency to pay for them. The dollar isn't legal tender in China. Can't pay wages with it and can't pay dividends with it.
The Chinese have nothing to spend those converted dollars on.except U.S. Treasury Bills. There are simply too many of them.
As for domestic debt held by the Fed, it can be retired through the process noted by world class economist Michael Hudson and others. The Treasury can simply authorize stamping trillion dollar coins and handing them over to the Fed. A large portion of our domestic debt would be paid through that process. It could be on-going. .. Banksters and financiers shudder at the thought..
Rather than taxing the wealthy as we used, to, the super rich and banksters now loan money to under-funded government and collect interest for the privilege from the middle class. In part, that's why the borrow and spend Repugnants do that. Reagan was the cheerleader for that...borrowing more than the combined borrowing of every Admin. before him. . It's just another means for wealth transfer to the top.
Moaning about the national debt is a Republican smoke-screen. It's engineered. Now what they want to do is cut social programs to help pay for the wealth transfer. . Dems seem to have gotten on board for that.
Retired Monk - "Ideology is a disease"
I guess my point is that the Fed, could easily buy back all of China’s bonds and the world financial system would not collapse,
Now, I don't live paycheck to paycheck, but nonetheless, I have to work much harder at the grocery store to buy my food: inflation is raging.
Yes it is. For example, I took my young daughter trick-or-treating on Halloween. I would have have to say that inflation won best costume this year. It was dressed up as smaller candy portions for all the children. "Fun size" has now become "Bite size". And the Malley's chocolate bars that a guy here in the office sells for his son's Cub Scout Troop every year are still $1.00, like they are every year. But they are significantly smaller bars this year.
Inflation, back when wages rose with it: "Man, remember when a candy bar was 10 cents?"
Inflation today, with stagnant purchasing power: "Man, remember when a candy bar used to be THIS big?"
Look for a common "Euro Bond" (if they will call it that) to be the inevitable solution that "solves" the European debt crisis, maybe sometime next year. It would be similiar to our US Treasury Bond. The United States of Europe.
That's all they know how to do, keep throwing new money (debt) into the system.
Our ideas about money are quaint to our times. As Michael Graeber points out in the "must read" DEBT, money is based in war and tribute, the symbol of unpayable "debts" inherent in the commercialism of what ought to be sacred social mutuality. At some point, the substance of human social needs will declare the financial tabs irrelevant, and the debts will be forgiven, discounted or whatever. You save people by crashing the metaphysical construct, not the reverse.
This does not dispute the excellent comments posted above about the nature of our economic dysfunction. When we return to the idea that value creation and "business" are not the same thing, we will have markets of cooperative pluralism and honor to serve our social unity. We will "trade" with those of temporary relationship, but not with those whose lives are intertwined with ours. That does not mean that global trade is not interdependent or that we are not in human communion with all the people of the earth. It does mean that there is some local connection among those whose social reality is a shared Commons and narrative. Pretending that we are isolated individuals as our neighbors are foreclosed is stupid.
"However, the resulting mushrooming exponential growth in indebtedness must collapse at the point where its interest and other carrying charges (now augmented by exorbitant late fees, bounced-check fees, credit-card costs and other penalties) absorb the entire economic surplus.
This is the point that has been reached – and passed – today. It has been developing for many decades. But there is a great reluctance to accept the fact that debts cannot be paid."
[The U.S. isn't the only nation in a public/private debt melt-down]
".......no economy can keep up with the burden of debts growing at exponential rates faster than the economy itself is growing. No economy can grow at steady exponential rates; only debts can multiply in this way. - MICHAEL HUDSON
http://www.counterpunch.org/2008/09/25/the-insanity-of-the-700-billion-giveaway/
Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City
Maybe after banksters in the U.S. and Europe own everything in sight...and debts still can't be re-paid...a new approach will be taken...like cancellation of debt and starting from scratch as previous societies have done..
Under normal conditions, sovereign nations don't have to borrow money into existence. They can simply create and spend it into existence as long as their expenditures don't exceed the nation's productive capacity. They used to do that before the establishment of the private banking system. Our own Constitution gives government authority to do that. We should probably utilize it.
Retired Monk - "Ideology is a disease"
are banks really allowed to loan out money that they don't have ?
isn't that like printing your own money ?
are banks really allowed to loan out money that they don't have ?
isn't that like printing your own money ?
poly replies: It's called fractional reserve banking. They have to have a fraction of the amount of money they issue as loans as assets or deposits. If you deposit $100 bucks, banksters can loan out nearly $1,000. The money is simply credited to the borrowers account. Created out of thin air..The Fed makes sure there are enough bank notes printed to cover it.
If bank loans./liabilities exceed ten times their assets, they are declared insolvent.
Nearly the entire money supply is created through debt public and private. It's been done that way ever since the creation of the Bank of England by private shareholders under a charter from the Crown.
If all debt were repaid, the money supply would disappear. Problem:... banks inject money into the economy equal to the principle of the loan. The interest amounts aren't injected into the money supply. There is a shortfall. Unless new loans are continually made, the circulating money supply will shrink and ultimately disappear.. It's called depression.
Prior to fractional reserve borrowing, ,governments simply spent money into existence for domestic use. England, in one of its most prosperous periods, used notched sticks. "Chits".
Ancient Egypt used mainly copper coins. The Pharoahs owned the copper mines.
Anything can be used as money and simply spent into the economy as long as it doesn't exceed the productive capacity of the country. (Borrowing not required)
Spain ran into too much money relative to its productive capacity. Spain issued too many gold coins relative to the nation's ability to produce goods and services. Rampant inflation developed...from GOLD!
The U.S. government can simply create and spend money into existence (Constitutionally) As long it doesn't exceed the nation's productive capacity, there is no inflation..
when there is idle capacity, as now, it can simply create and spend money to utilize the idle capacity. When there is no idle capacity, it has to rely on taxes. It then has to utilize the existing money supply..
To simply spend money into existence when beneficial and necessary would require changing the current imploding financial structure that was begun with the Bank of England. The Constitutional authority to do that has been in place since the nation's inception. It's just a matter of the political will to excercise it. Banksters would yell "foul" from every roof top.There favored debt is sovereign debt.
The idea that private banks can create money out of thin air...and governments can't, is a self-perpetuating scam. History contradicts the scam job.
Retired Monk - "Ideology is a disease"
.
When the Jubilee is needed, the debts will be renegotiated and social cohesion will count for more than bank accounts. We are caught up in metaphysical madness where money has replaced economy and society is a subset of trade. It cannot work.