Quote:
|
Originally Posted by jorgelito
Where does he say Republicans and budget in the same sentence? *confused*
Partisan sniping aside, does anyone know how foreign holdings of US currency affect our debt "crisis"? For example, China & Japan hold a lot, I mean alot (I don't have an exact figure handy) of US currency.
While on the surface this may seem scary, I always felt that it wouldn't be in their interest to let US $ fall (too much) cause then they would be screwed to. Sort of like a mutual interdependency. Would it be similar to the T-bills situation? How does it affect or does it affect our debt?
|
This is why "it hasn't happened yet". Keeping up the massive purchase of US debt keeps the value of their holdings up.
But, if any one nation decided to turn tail, they could possibly "get out before it is too late" and cash in on their US dollars before the US dollar fell.
The problem is, if any one of them do it, the rest may follow. Resulting in a massive crash.
So, in theory, all the central banks of asia have to do is all continue purchasing US dollar debt.
The thing is, the rate at which they have to purchase US dollar debt is accellerating. And some of those nations are now exposed to US dollar fluxuations to a degree that approaches a good percentage of their annual GDP. And some of the nations are already talking about 'not selling US assets, but rather not buying them, and diversifying their holdings'.
But the US dollar is only being held up by massive institutional buying. If the institutions stop buying, the dollar stops being held up -- even holding becomes an act that will make the US dollar fall.
In other words, the Asian banks
cannot keep this up much longer. I've seen estimates from 1 years to 5 years before it is no longer
possible for them to keep the US dollar from falling.
Remember the stock market bubble? Everyone (well, anyone who wasn't a fool) knew that the stocks where overvalued, but everyone also knew that other people where buying the stock and the prices where going up. So long as there was a bigger fool, you could sell the stock to them, and reap a profit.
The US dollar seems to be in a game of 'bigger fool' or a bubble. The only thing keeping it up seems to be people buying the dollar in order to keep the paper value of their older holdings from collapsing.
As noted above, there are other solutions to this that I can see: a large interest rate spike, a cultural shift back to early-80s savings rates, or a real world war would probably all 'work'.