And So It Begins...

[Anonymouse]

That adage is wrong. These debts are scheduled to be paid over time, and if anything makes for stronger ties between nations.



That's also wrong. The federal reserve can't inflate or deflate currency all that much. The value of any free trading currency is in the hands of the currency market. When a certain currency is in demand its value goes up and vice versa.

What does this have anything to do with anything? Practically the whole boom/bust cycle is a result of the Federal Reserve's inflationary policies of printing paper money at little to no expense. Paper money has no intrinsic value other than what the government says it is. It not a hard commodity item like gold, therefore subject to inflation and abuse, as is the case. It is fiat which maintains its eminent position in the world because of lack of a better alternative. In contrast, gold has been the money of man since the dawn of civilization. Throughout the ages it emerged again and again because man needed a dependable medium of exchange. Everyone knows that commodities are subject to supply and demand. That does not mean the dollar cannot be devalued. If looked from the perspective of hindsight, the dollar has been gradually losing its value, as of late next to the Euro, or Yen. Both the Treasury and Federal Reserve officials seem to underrate the growing international dangers to both the dollar and the economy. But even if they were cognizant of the true situation, their choices of action would be rather limited.

The point is that now America's debt is financed by countries like China. If China were to undergo a crisis and hold back payments, it is tied to a fixed American dollar. It portends disaster for China. With China's finances in disarray, would the country's robust purchases of American debt continue at this pace, if at all? Washington may find it much more difficult to obtain cheap underwriting for its gaping fiscal deficits and rampant borrowing. In sum, a crisis of this would give politicians and populace something to gripe about.

[nunechka]

this also reminds me of the saudi's who have billions invested in the US and if they were ever to pull out (which would not be in their interest), or if their government was to undergo some disaster, the US would suffer greatly from it...

and at this point in time since the saudi royals funded the bin laden's regime (al quada) and the US did nothing to the saudi royals , you can see maybe what type of power people who are heavily invested in the US will get away with...

I actually knew this but, i try not to think about, i already 6 white hair... no need for more...

[loseyourname]

People are guilty for consuming?

Not at all what I was trying to say. People are guilty for not producing enough, not to mention the fact that they freely choose to consume goods that are largely produced elsewhere. Of course, "people" includes policy-makers and CEO's as much as it includes the middle-class shopper. We are all people and we all take part in making the economy whatever it is or is not.

[loseyourname]

Paper money has no intrinsic value other than what the government says it is.

I think his point is that the government has little say in how much the money is worth relative to other forms of currency. That's mostly dependent on whoever it is setting prices and exchange rates, which in turn is a reflection of respective credit ratings and demand. The only thing the government can do is increase the supply to decrease the value or decrease the supply to increase the value. There are many other factors, however, that play into how much a certain currency is valued at.

[Anonymouse]

I think his point is that the government has little say in how much the money is worth relative to other forms of currency. That's mostly dependent on whoever it is setting prices and exchange rates, which in turn is a reflection of respective credit ratings and demand. The only thing the government can do is increase the supply to decrease the value or decrease the supply to increase the value. There are many other factors, however, that play into how much a certain currency is valued at.

The belief that the value of a currency is measured or determined by the exchange rate is a fallacy. It's not possible to determine the value of a currency between two dates by looking at the change in the exchange rate. Its not possible to infer the future value of a currency from an estimate of the future exchange rate. Instead, its the value of one currency in relation to another that is the fundamental determinant of the exchange rate. So what we are really talking about when the value of the dollar or any other currency rises or falls is purchasing power, which is in direct relation to its supply, whether it is being inflated or not.