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Oxfordite

Us National Debt

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My economic knowledge is not that great. We know that the world economy is fuelled by the world, mainly Asia, supplying goods to the US who pay for the products by credit offered by those countiries selling the goods. This debt currently stands at several $trillon. This forms part of the dollar based monetary system that replaced the gold standard some time ago. I read that if this system was abandoned and the dollar was to dive the US could then address its balance of payments. Surely this can't be right, they have to make things first before its economy could grow again? Furthermore its debt would increase because its currency would be devalued? Wouldn't also the Chinese economy go tits up because it won't have anyone to sell their stuff too?

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My economic knowledge is not that great. We know that the world economy is fuelled by the world, mainly Asia, supplying goods to the US who pay for the products by credit offered by those countiries selling the goods. This debt currently stands at several $trillon.  This forms part of the dollar based monetary system that replaced the gold standard some time ago.  I read that if this system was abandoned and the dollar was to dive the US could then address its balance of payments.  Surely this can't be right, they have to make things first before its economy could grow again? Furthermore its debt would increase because its currency would be devalued?  Wouldn't also the Chinese economy go tits up because it won't have anyone to sell their stuff too?

The reason that the US has been able to import more than it exports (current account defecit) is because the countries that have a surplus with the US have invested in US assets (financial account surplus). When these countries realise that the value of these assets is depreciating (property, stocks, US dollars, bonds) they are likely to invest elsewhere. US Dollar would then crash. Don't think there is an easy way out of this without a severe global recession. The US has been helping the worlds economy by having a large deficit - and this won't continue indefinately.

Yes Chinese economy would be in a mess and Mexico - as would most of Asia.

Don't think devaluing the dollar would help balance US exports with imports - it's still would be cheaper to manufacture in China, Mexico etc.

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The reason that the US has been able to import more than it exports (current account defecit) is because the countries that have a surplus with the US have invested in US assets (financial account surplus). When these countries realise that the value of these assets is depreciating (property, stocks, US dollars, bonds) they are likely to invest elsewhere. US Dollar would then crash. Don't think there is an easy way out of this without a severe global recession. The US has been helping the worlds economy by having a large deficit - and this won't continue indefinately.

Yes Chinese economy would be in a mess and Mexico - as would most of Asia.

Don't think devaluing the dollar would help balance US exports with imports - it's still would be cheaper to manufacture in China, Mexico etc.

Europe has the least involvement in this daft money-go-round and would therefore be least affected. So invest your pension in European equities?

Edited by Oxfordite

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My economic knowledge is not that great. We know that the world economy is fuelled by the world, mainly Asia, supplying goods to the US who pay for the products by credit offered by those countiries selling the goods. This debt currently stands at several $trillon.  This forms part of the dollar based monetary system that replaced the gold standard some time ago.  I read that if this system was abandoned and the dollar was to dive the US could then address its balance of payments.  Surely this can't be right, they have to make things first before its economy could grow again? Furthermore its debt would increase because its currency would be devalued?  Wouldn't also the Chinese economy go tits up because it won't have anyone to sell their stuff too?

If the debt is held in dollars, which it almost exclusively is (in Tresury Bills) then hyperinflation and a collapse in the dollar would erode that debt, but you trash your economy in the process, though central bankers seem to think this is better than a deflationary cycle, as seen in Japan in the 90's, in that case debt would increase.

The US and China are indeed in it together, the Chinese and Asian central banks certainly aren't buying US treasuries for their yields, they do it to prop up the dollar against their own currency and flood the US with lots of credit so Americans can easily borrow to consume imported Chinese goods.

If they really wanted to take the medicine the US would need to balance its books and get the federal deficit down, raise its savings rate, bring the trade deficit down, prop its currency up by raising interest rates and encourage more inward investment (not just foreign firms trying to dump their dollar holdings by buying US companies).

But it'll never happen because the dollar allows them to get away with it, if any other country did the same they would of been bankrupt years ago, the UK went begging to the IMF for much lesser reasons, and we were an oil exporter until recently ('petro currency').

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Europe has the least involvement in this daft money-go-round and would therefore be least affected. So invest your pension in European equities?

Perhaps

Europe possibly would be the least affected - I think Germany is exposed to the US the most.

Some are saying gold - but not sure about that - I like my investments to earn income - but that's just me.

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If the debt is held in dollars, which it almost exclusively is (in Tresury Bills) then hyperinflation and a collapse in the dollar would erode that debt, but you trash your economy in the process, though central bankers seem to think this is better than a deflationary cycle, as seen in Japan in the 90's, in that case debt would increase.

Are you saying they would have a choice between deflation or hyperinflation?

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Are you saying they would have a choice between deflation or hyperinflation?

It's would be out of their hands, it would depend on other countries, if they started bailing out and there was a run on the dollar the fed would have to raise their interest rates and curb imports, which would all drive inflation.

If the oil producers started pricing in Euro's they'd be in real trouble, I believe Iraq did this for a while <_<

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Don't think devaluing the dollar would help balance US exports with imports - it's still would be cheaper to manufacture in China, Mexico etc.

Ultimately, this must surely be the only way to restore the current account deficit? The dollar has to devalue enough to make is worthwhile making things at home in the States, hence reducing imports as well as encouraging exports.

If China hadn't decided to buy dollar assets then the Yuan would be much stronger by now, and they wouldn't be in so much of a pickle.

Who's going to lose out most in this - it must the holders of the dollar assets? If they devalue in yuan terms by 50%, why do the Americans care? Ok they may now get inflation because of the rise in cost of imported goods, but they can export more too...

People talk of a managed devaluation, but rather like houses - do what to lose 50% overnight or spread the losses over 3 years - doesn't make much difference in the end.

Also, if the yuan appreciates it gives China more purchasing power to buy oil (still dollar denominated as it is). Could be important in a peak oil scenario.

Really wise I’d done an economics degree...

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Are you saying they would have a choice between deflation or hyperinflation?

Talking of hyperinflation and examining your avatar...

I shall henceforth be referring to female busts as...

Beenies...

as in "nice pair of Beenies"

Continue with your economics chat.....

Don't mind me...

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It's would be out of their hands, it would depend on other countries, if they started bailing out and there was a run on the dollar the fed would have to raise their interest rates and curb imports, which would all drive inflation.

Trade imbalances result in the following then

countries with trade surpluses end with deflation

countries with trade deficits end with inflation

which both end in credit contraction

The UK is therefore heading for higher inflation. Though I find this hard to believe since we have massive world overcapacity and over investment which causes deflation. <_<

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Talking of hyperinflation and examining your avatar...

I shall henceforth be referring to female busts as...

Beenies...

as in "nice pair of Beenies"

Continue with your economics chat.....

Don't mind me...

Beenie does have rather nice and big ones. I don't mind her so much as least property developers add to the economy in some way. I P*** in the dead skull of K***** A****** :angry:

Edited by Oxfordite

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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