View Single Post
Old 03-23-2005, 07:57 PM   #15 (permalink)
Yakk
Wehret Den Anfängen!
 
Location: Ontario, Canada
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'.
__________________
Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.
Yakk is offline  
 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360