Does This Argument Hold Any Merit?

[earth]

I am USA and I have some financial difficulties. Banks are not lending. If they do not lend I face a possible recession. If I lower interest rates to create more money to lend then I will create inflation. People with dollars will not be happy with their dollars depreciating. The dollars I need are out there - in places like China. If I sell assets to China I can get the dollars to put into my economy without creating inflation.

I am China. I have dollars and I see the USA is in difficulty. Inflation will devalue my dollars but if I start to sell them on the open market it will put the value down further. I would be happy to exchange some of them privately with the USA for something less risky, especially if that means my remaining dollars keep their value.

Is this thinking anywhere near realistic?

[earth]

Don't all answer at once

I don't know if any of my reasoning is actually correct or if I have misunderstood all the principles touched on. If it is incorrect then please correct me.

[Mr Nice]

I am USA and I have some financial difficulties. Banks are not lending. If they do not lend I face a possible recession. If I lower interest rates to create more money to lend then I will create inflation. People with dollars will not be happy with their dollars depreciating. The dollars I need are out there - in places like China. If I sell assets to China I can get the dollars to put into my economy without creating inflation.

I am China. I have dollars and I see the USA is in difficulty. Inflation will devalue my dollars but if I start to sell them on the open market it will put the value down further. I would be happy to exchange some of them privately with the USA for something less risky, especially if that means my remaining dollars keep their value.

Is this thinking anywhere near realistic?

the trouble with that is say CHina traded half of their trillion dollar dollar reserve for 500 billion in other US assets.

the US would then be DOWN actual income producing assets, so in the future it will be even HARDER for their economy to get better.

say the UK sold all of it's banks to raise money to pay off some built up debts in the system.

then where is the money going to come from next year?

you would ultimately end up with something like those african countries where foreigners own all the land and minerals, businesses etc.

the government ends up with massive debt, the people live in poverty since all the money made in their economy is leaving the country.

Edited March 1, 2008 by Mr Nice

[earth]

the government ends up with massive debt, the people live in poverty since all the money made in their economy is leaving the country.

I did not necessarily mean banks when I said assets in fact I did not really consider what they would be but I suppose if it were possible it would be something that did not reduce their growth further. I know that sounds like a worthless asset but you could consider gold for instance. I can see what you mean, asset was the wrong word. 'Something' would have been better

I am aware of banks being bought by other countries and the interest paid to them going to those other countries. As a side note this has already started to happen for the US. I read 38% of Citygroup was purchased by a Chinese sovereign wealth fund.

Edited March 3, 2008 by earth

[Injin]

Matbe you can look at this in another way.

You are Asda, and you own billions worth of Tesco vouchers. Releasing the vouchers will mean that Tesco go bankrupt but you will lose a lot of stored value in those vouchers. Given that you are business rivals, would the loss of the value of the vouchers bother you much if it meant your only real competitor was finished?

You do it, wait until they were firesaling and then buy up only what you needed and could move to your own stores.

[earth]

Matbe you can look at this in another way.

You are Asda, and you own billions worth of Tesco vouchers. Releasing the vouchers will mean that Tesco go bankrupt but you will lose a lot of stored value in those vouchers. Given that you are business rivals, would the loss of the value of the vouchers bother you much if it meant your only real competitor was finished?

You do it, wait until they were firesaling and then buy up only what you needed and could move to your own stores.

I certainly considered that when I first understood how much $ China had. Then I thought they would probably be far more stealthy about it. Then I considered how you have these two groups waring with each other - USA and Iraq/Afghanistan with China sitting on the sidelines waiting to swoop in and claim the spoils. It looks just like WWII. As I understand it the US held back, we sold our businesses to them cheap and then took out a further loan to fund our fighting. Once WWII finished USA rose to be dominant.

Back to my original idea. I think what I am really saying is sell stuff to other people to keep your finances in order. Which is no revelation but what would we sell to the countries that produce all these things that we want? I suppose that the services rather than products argument.