I was having a conversation with a buddy on U.S. debt to China, and who would come out on top in this issue in case of war.

I know that they make a lot of money by making a product with raw materials at price (x)and selling at a higher price (y) to us. They also invest a lot of that money into U.S. Treasury Bonds, to collect interest from the ever resilient U.S. taxpayer. So lets say we go to war over Taiwan or whatever and we tell China screw you, we are not paying you back. Could China tear up the bonds that we gave them and then print that equivalent of money in their own currency and float it without it destroying their economy. I Think they could as it was money that they earned by growing their economy to the size that it supported that money which they then put in the equivalent of an off shore bank account.

I don't know if this question makes any sense but I can't think of any other way to ask it.

At this very moment, if they chose to, China could destroy our economy almost instantly. The only reason that they do not is that they are not the only holders of our debt. If they were to kil our economy, it would also kill the economies of several other nations. Nations that China needs as allies for the time being. If we were to get into a shooting war with China, they could, and probably would destroy our economy regardless of any other collateral damage that it would produce.

If the United States ever defaults on her debt payments, the dollar would become worthless  overnight.

China builds video games and baby dolls.

We build airplanes and high precision weapons systems.



Who's GDP is going to be more useful in a total war?

We could just as easily change our currency type and declare all US dollars void. Their debt would be worthless.

Back to the silver standard?

Nope...



No 1st world nation will ever use a pegged currency...



While wiping out our debt by changing money & not accepting dollars would hurt the Chinese, it would severely damage the credibility of the new money as well....



In reality, the situation between the US and China is economic Mutually Assured Destruction....



THEY cannot survive economically without the US buying the crap they produce...



WE cannot survive economically without their cheap labor and willingness to finance our debt....



 

It's interesting to note how many Chinese weapon systems and mock battles are tailored towards defeating our defense systems.....

Wow, what a tangled web we weave.....

I would check that, they nearly outdo us, and they will surpass us in the near future

If China dumps all our debt, THEY will be screwed as well.  They have been recent buyers at low yields.  If they start liquidating it all, they will be taking a very large loss as the value of the debt will drop WELL before they can liquidate it all.  Remember, the only way they can "dump" our debt is to find a willing buyer.  They hold a massive amount of our debt and would single handedly freeze the international U.S. debt market.  (Once the panic caught on.)  Sure, we would be hosed and would not be able to sell new debt to save our lives, but they and all other holders of U.S. debt will be hosed as well.

If you owned 100,000,000 shares of microsoft and tried selling 90% in one day through your broker, by the time you sold the last share do you really think it would bring the same price as the first?

IF a panic occured worldwide over U.S. debt it would be ugly for everyone.  China knows this, and would not be continuing to buy our debt if it planned on turning around and destroying us.  It would be like shooting your enemy with a bullet passed through your own head first.

Concerns over U.S. and other major debt markets are very valid, but the China doomsday scenario is not one I am losing any sleep over.  


Another thing to consider is that the Chinese currency is heavily manipluated to create favorable foreign exchange scenarios for their exporters.  They manipulate it through purchases of dollars thus strengthening the dollar and making exports to the U.S. more competitive.   They have a target exchange rate like our fed has target interest rates.

Makes sense, if you think about it...



If you practice to beat the #1 power, then the #2, #3, and so on should be easy...



 

but china states we are only 5% of thier GDP...so, where does that put your theory?
China has no issue closing its borders and sealing out the world
china has no problem with controling its population growth thru abortion or starvation
china would have no issue in landing 100k troops on the west coast and lose 100k more getting the landing craft to the beach..

They have been here thousands of years.  I think they will remain awhile for awhile.

yep

The 5% number is deceiving...



The VAST MAJORITY of China's economy is based on the production of goods for Western consumption, OR the production of goods to support the production of goods for western consumption...



It is a significant enough number of employed and relatively comfortable (for China) people who DO NOT want to go back to the rice fields....



That if the government of China did ANYTHING to cause them all to be suddenly unemployed (like fucked with the US/western economy)...



There would soon be a new government of China...



 

China is swapping reserve dollars for gold right now. That tells pretty clearly the future they see for the US dollar.

They are buying less and less US debt, and we are using more and ore trickery to preserve the illusion that we are credible debtors. Bond pricing strategies, "mystery buyers", printing money to buy our own, etc.

A bond meltdown could work something like this.

1. We default on interest payments, possibly if our bond ratings fall below AAA and we have to pay MUCH higher interest rates on new loans to pay interest on old debts.

2. Bond prices collapse, meaning US banks and other entities who hold US bonds in quantity have to treat them as worthless, they can't be used as collateral or to make balance sheets look good anymore.

3. Market for sale of new US Bonds collapses, we can't borrow any more money, can't pay interest on old debts, beginning a self perpetuating cycle of additional defaults. Eventually the overseas value of the dollar drops, perhaps precipitously.

4. Some banks collapse, companies involved in global commerce are hard pressed to function with worthless dollars, Government faces a choice.

5. Raise taxes significantly, impacting the economy more yet, or print more dollars making them more worthless the more they print.

6. At some point, you reach criticality, either through business collapse, through general tax revolts/strikes, bank failures, or government cutting services below basic maintenence levels.

Right this minute, there is no bond collapse in progress.

However, we are using trickery to keep pricing on our bonds artificially high, we are printing money to buy our own bonds, and the Chinese, having largely quit buying US bonds, are trading US dollars for gold.

There are problems coming, no doubt about that.

This is why Obama is in such a huge hurry to ram socialized health care down our throats. once the bond markets begin to collapse, he knows nobody will support any massively expensive new programs.

In other words, we have borrowed WAY too much money, are paying so much interest we have to resort to trickery just to borrow enough to pay the interest, and instead of cutting spending and borrowing down to sustainable levels, Obama is in a race against time to spend massive piles of money we dont have before any crash occurs.

China has many options, right now,  if they want to buy debt, other than US bonds, and they are exercising them now, while our bonds suffer falling prices, and long term interest rates are rising to try to make our debt more attractive.

In the 3 to 10 year time frame, China can greatly shift their economy to other buyers for their products, and the fact that they are selling dollars to buy gold tells me they intend to do exactly this.

The US is a deadbeat debtor. We are barely covering our interest payments for now, but have to print fake money to do it, and are, at the same time, trying to borrow the moon atop all our other debt. The word is out. How it plays out is still a question, we could find a new series of suckers to loan us more money we can't pay back, we could get cut off and just die a slow death, or we could be "outed" and have to "declare bankruptcy" leading to a catastrophic meltdown, or something in between.

The one thing that won't happen?

China keeps "giving" us money to enjoy a lifsestyle we can't pay for in the medium or long term.

I sort of look at it this way. If you owe the bank a little they own you. If you owe the bank a lot you own them. The good old USA owes a lot, and China is the Bank ala T-bills.

That's true in the short run, no doubt about it.

In the long run, if you expect China to keep bending over forever for a dry fucking, you're in for an unpleasant surprise.

They trade(d) with us, because they make (made) a profit doing so. They make things, we buy them, they make a profit.

They also parked their profits in our bonds. We pay interest, they made money loaning us money.

But now they see us struggling to pay the interest, and they realize we will probably NEVER pay back the original loans. They KNOW we have to borrow even MORE money to pay them for the goods they sell us.

The signs that they are writing us off are clear. They quit buying our debt and they are trading dollars for gold. If you think they aren't hunting up other buyers for their output, you are dreaming.

You are living in Iceland, thinking "No way ALL our banks AND our currency can fail at once."

Not saying it WILL happen here, but the fuse IS lit.

So they are using the bonds to back their own currency? If they are doing this I don't think they would be able to just "replace" all the missing money if we defaulted.

they must be slowly converting dollars to gold or I could see that starting a run on dumping our bonds and that is not good.....

Your right, one day millions of Chinese Soldiers will be coming ashore to collect their debt.  Guns would have been banned,
but if not, the ammo has been banned.     They won't be coming here for wait in line health care.

I refuse to use the TERM WE, when we have idiot politicians planting the seeds of our demise.  They are wasting hundreds of
billions on what.??   They cannot conceivably even know themselves, when they do not bother to read the spending bill.
So if the Congress didn't put the spending amounts in there, who did.    

CORRUPTION THE LIKES WE HAVE NEVER SEEN.

I think that logic is backwards.  You own them if you have a small balance on your credit card, or loan, because you can pay it off.
They jack your rates up, you pay and close your account.   You owe them a lot, they own YOU.   You are at their mercy.

My credit card has remained at 9.9pct it was 8.9.  If they raise it higher, I will close it.  I cannot imagine as some have said
it jumping to 20pct.  

When you are debt free and you own the land your standing on, you can tell that banker who is trying to give you a loan to get the
fuck off your land.  If you owe them, you might have to take that loan in order to please  them with reinvesting in their property.

It's like this, GM, Chrysler, they will be told what kind of vehicles to build.  Ford had enough balls to tell the Govt to stick it.
But guess what.  The Govt will go after Ford.  Remember Ford once apposed the govt back in the depression finally succumb to the
weight of the govt.  You might even see tax incentives to buy GM, Chrysler, because they have ownership, they will not offer the same
to Ford.

I would recommend to buy nothing but Ford now to give them support.  They are the last bastion of freedom.  I own a Jeep Wrangler,
Rubicon, seriously thinking of trading it in, just to buy a Ford Vehicle.   I suppose I should before obiwan pushes oil up further, resulting
in 4 or 5 dollars a gallon gasoline.  Your messiah just put additional acreage off limits to drilling.

Please, enlighten us as to why...

china is at the point where they can sustain there own prosperity, we are done, unless we become  a free country again
regulations are killing startup business, few understand them, or how to comply,
this government will colapse under the weight of red tape, it may not be this week but it will be soon, then free enterprize will
provide prosperity to the able.

so, the people of China are going to go dig up the matchstick musket thier 7th great grandfather buried when he left the service of the emporer? or their privatly owned ak47 and rpg and take back their government?
stand down tanks in the square with their bodies?
the Govt of china has no issues, issuing 7.62 crowd control

yes, our EPA will soon have the abillity to tell farmers what to grow, cap and trade will kill small busniess and is going to cause poor people to riot, if that window unit in the bedroom now costs and extra $100 a month to run.
we are going to colapse and UN TROOPs will be in the streets maintaining order..we are reaching./hell, have reached an unststainable Republic, socialism doesnt work, as some point, you run out of others peoples money,
if we go back to 70 to 90% tax rates on the rich and not so rich, people will just find reasons to close busniess, cut out middle management,  or just quit and get on the system and finish the colapse..
we are already on the verge of the dollar being nearly useless, china, russia, brazil are buying bonds and dumping them, the dollar and THE USA have lost standing in the world, period,,

little shit in korea threating us with NUKES,,,FUCK,,

negetive on china killing our economy instantly.   70% of chinas exports aregoing to walmart.   Without that money comming in they are just as sol as we are.

It is an extremely touchy situation an dthe chineese are very upset with the us and obamas spending, right now they don't think we can pay them back and if we declare bankrupcy they have essentially been giving us the stuff we claim to have been buying from them.

Think if it like this if you loan me money and i don't pay you back i have what i bought with the cash and didn't earn and you are out out of what you would have bought with the cash.

edit for clarity

There is no way in hell they could transport that many bodies and support them.  they would run out of beans bullets and bandaids very quickly.

The 5% gdp cliam is way too low and is just out there to make their situation look better, they don't like to show weakness.

To the best of my knowlege, China is swapping Reserve Dollars for gold, not dumping bonds. We knew when other countries began refusing to buy our bonds, those of us who were watching close (not sure what the average sheeple knows), and I think we'll know if anybody starts dumping them. Pricing will collapse, and interest rates will soar. Watch interest rates witha grain of salt. there are several downward pressures on rates right now, which offset unease in the bond markets.

Understand too, dumping bonds can be a suicidal act, and dumping is not necessary to put the US on it's knees. If you sell a bond for less than the maturity value, or even worse, less than what you paid for it, you never get your money out of it. That's a firesale mentality, take whatever you can get, who cares how much you lose, the fear is that you'll lose it all. But people buy bonds A, because they expect to get their money back, i.e. it's a safe investment, and B, for the interest the bond pays every year, making bonds a more attractve return than stuffing it in the mattress. Dump the bonds early, and not only don't you get your original investment back, you also stop getting your interest payments.

Much worse, you dump enough bonds, and you start a run on the bond markets. If the market can't buy all your bonds at once, the ones you still hold drop in value, theoretically toward zero. Much better to hold your bonds and reap the interest, and hope some OTHER idiot will buy MORE bonds later on so the bond issuer can pay your original investment back when it matures. You might slowly sell off your bonds, hopefully at temporarily higher prices, and hope you can get all the ay out before anything crashes, and hopefully without triggering a crash yourself.

That's what we see now.

Reserve dollars are foreign currencies held in reserve. Look at Iceland. They maxed their presence in the global banking business in the 80s and 90's, and as a result, the Kroner was doing very nicely, as compared to other currencies. Iceland's holding in Kroner were, in effect, a savings account for the government of iceland, and they trended towards holding less currency of other nations in reserve. When one of three major banks was looking to miss a major payment, the Kroner had dropped significantly in value, erasing a large fraction of Iceland's savings account. They held the same number of kroners, each of which was worth less, and they didn't want to help bail out the bank in low value Kroners, instead they wanted to hold them till the value went back up. But they were light on foreign currencies, in fact, bailing out the bankwould have taken just about all the foreign currency Iceland had.

So Iceland delayed a decision, and ultimately, that delay triggered a domino effect that wiped out all three of Iceland's major banks. Huge holdings in Kroner went to near zero, meaning the country's treasury went from fat to empty in a short time, and on top of that, when a bank misses even one scheduled payment, the banking world views that bank as insolvent, and runs like hell away. The flight away from Icelandic banks killed them, assets sold piecemeal and in some major instances, SEIZED by foreign governments (England), so the government treasury went to zero while the banks ceased to exist.

Total meltdown.

What's the lesson here?

It's a little complex.

Clearly the US wants to hold sizeable foreign currency accounts, to pay debts if the dollar drops in value, but that's only partially germain to the subject at hand.

The real lesson is that ANY country needs a sizeable foreing currency holding, including China.

But China is quietly trading reserve dollars for gold.

That means China believes that dollars will be worth less in the future, and will be less useful for paying debts if the Chinese yuan needs a boost.

How can  China know that dollars will be worth less in the future? Well China has been "propping up" the dollar for a couple decades now. China bought US bonds funding both US increased standard of living (on credit) and the proceeds of which were also used to pay interest on old loans, so the US could successfully seek additional loans to pay for their heroin (debt) habit.

Now China has stopped buying US bonds, and based on their sales of Reserve Dollars for gold, PROBABLY has made a firm decision NOT TO BUY ANY MORE.

That's the real lesson here. China has probably made an internal decision to stop funding the 25-35  year US borrowing spree.

From there, it is simple economics. Less demand for US bonds, lower rpices for US bonds and the US has to pay more interest to attract buyers...OR....learn to live on a tight budget. Higher interest rates can cripple an economy who is already hurting from interest payments, and who looks forward to less ability to borrow new loans to pay interest on old debts.

Miss one payment, the news gets out and grumbles are heard, renegotiation takes place, all is well, but leaky. Miss several, and you begin a capital flight out of the US. That can go to a domino style collapse, that ends with the banks locking their doors and telling depositors to sue them in bankruptcy court.

The above is how things work on a general basis, in normal times.

But the US has Obama at the helm, and he is spending BORROWED money just like a terminal debtor who KNOWS he's about to have his utilities cut off, his car repossessed, his  home foreclosed, and his underwear sorted through for value, then tossed in the street if it can't be sold off for pennies on the dollar. Obamas wearing more bling than anyone in the bar, all bought on credit, throwing Franklins around buying rounds for the house, because he knows the lenders are about to throw his deadbeat ass out in the street.

He's RUSHING to make universal health care a funded reality BEFORE the lenders cut us completely off.

How's this going to work out?

Really only three ways it can. Massive new taxes, the printing of huge sums of unearned dollars leading to dangerous inflation, or bankruptcy and devaluation of the dollar.

China has objected to the US printing new money, and they can hurt us if pressed hard enough. They can hurt us without hurting themselves only so much today, but their flight from the dollar tells us they are repositioning their economy. In five years, about the time when the interest on Obama's new programs reach crushing levels, the Chinese will have new markets for their goods and can fuck the US economically without hurting themselves nearly as much. Their flight from the dollar tells us they plan to do EXACTLY THIS.

Obama doesn't care.

Neither do his voters.

One told me one month ago, "So what if we go bankrupt in ten years? Between now and then, I'll buy two or three businesses on easy government credit, be making money from each, maybe be able to sell them for a profit before the crash, I'll live damn good for ten years, who cares what happens after that? My only alternative is to live like poor folk now, then die of starvation later."

Clearly, the option of working now, and saving now, holds little attraction for this group.

And of course, health care for people who only use emergency rooms now, and skate the bills, will not have to skate the bills for that decade either, meaning they can KEEP their businesses even while skating health care expenses, and can  pocket more cash from the businesses we bought them through liquidating our own dollars' value.

Understand, Obama sees this coming, and it's not that he doesn't know. He said he would re-distribute the wealth and he is. The country is collapsing, he is borrowing the moon to give to deadbeats, and he is selling off the assets and giving the deadbeats the proceeds, re Chrysler and GM. THEY know it's on purpose, they know what it means a decade down the road, and they will either live like kings for ten years, or sock the cash away in mattresses to spend when the real crash comes.

Our job is to stop Obama as soon as possible, beginning in 2010 by taking away his majority in the Legislature, then shitcanning his stupid ass in 2012. At the same time, we have to play our money smart. The dollar will drop in value, there is no other way. The value of the dollar is vastly inflated right now, as a result of two decades of wild borrowing, and little producing.

My strategy for beating Obama is simply by not playing his game.

1. I don't buy the sunshine reports he's blowing up my ass about how good the economy is. I invest in small, quick turn investments only. In and out with a fraction of my assets, quick kills to make up for large fractions of assets sitting idle, in cash. Quick turn arounds on shorts. I used to avoid shorts, i don;t like betting something will fail. Not anymore, I have become a predator that eats would be predators.

2. I see where profits are being made today, and where currencies are likely to be stronger in the future, and am maneuvering to take maximum advantage of this, hometown pride be damned. If he can milk the fall of the greatest country in the history of mankind for the beneift of himself and his friends, so can I.

3. If he wants to devalue the dollar, openly or subversively, i can make a shitpile of money off his actions.

4. If he wants to tax the ever loving shit out of income, I will continue working for me, not for dollars. Past two days I refurbed my computer network. Could have spent ten grand, instead I achieved the same (actually better) result with my own effort by buying parts wholesale and second hand where advisible, and am mostly done with a ten grand network, that only cost me 1 grand, meaning I legally cheated Obama out of nine grand in income tax. "Money" is the middle man for most people. They work for money, then spend the money buying what they need and want. I cut out the middle man, I work to make the things I need, instead of working for money, and I cut out the tax the middle man gives to deadbeats, that he FORCES me to pay anytime I trade effort for money.

5. If Obama chooses to tax the ever loving shit out of everything we purchase, and he will, there's no other way to make interest payments on the money he's already borrowed, well my buying spree is just about finished anyway. My guns and ammo are good for ten years, my barn and machine shop and studio and lab will be done this year, my end of the world and short term SHTF preps are on my shelves, almost every system I need to survive and thrive, and enjoy life, is maxed out NOW, before Obama can raise the taxes. When Obama reaches for MY wallet, his hands will close on empty air.

You all can do this too. You won't stop him, but you will put him in check. Money is a funny thing. Just enough to pay your bills is one thing, but one dollar short of that amount is bankruptcy. If you build ONE THING for yourself instead of earning taxable dollars to buy it, that MAY be the dollar that would put the US over the edge, missing a payment, and Obama may not be ready to pull that trigger today.

Cut your money habit, and invest the money you MUST make into something that will hold value, earn interest or returns, and that will NOT feed the looters.

In any event, you will preserve more of your wealth, and you will earn less dollars for deadbeats to party with. Where should your dollars go?

Out of dollars, and out of companies that Obama can steal from. Into companies that Obama can't loot.  Into currencies that aren't artificially inflated from years of borrowing. Into things that give you daily pleasure, and things that help you survive.

China dumping reserve dollars for gold is a very very early signal of a global flight out of the US dollar. You want to be on the leading edge of that and get 95 cents for each buck you own, or the last to recognize it, where you get 50 cents for each buck you own?

The 50 centers might be proud they "stuck with" their beloved country, but they are "sticking with" (and supporting) the very powers that intend to loot it. The 95 centers are, perversely, working to preserve what America once was, and will be again once the looters finish their big party and the cleanup bill comes due.

If, by fucking what Obama has made America into, and saving your wealth to profit through reconstruction after he destroys it, you get filthy rich in the process, because of the dollar collapse Obama is COUNTING ON, so much the better.

ships, planes, subs, small cells already landed as land owners, investors, vacationers arranging takeing down the infrastructure on the mainland?
secondly, they are invading the Richest Country on the planet, dont think they are worried about support, bullets or bandaids. like I said, they would send in 100k troops to fail and another 100k to march over thier bodies.
even IF we are half of thier gdp, again they have no issue of reducing their population violently or thru sickness or starvation, they DO NOT think like the Western world, if you beleive they do, you are underestimating them.

I spent 3 tours in Nam, saw the Asian mind and reseliance in battle, they will eat each other if need be.
DO NOT underestimate these people folks. and our war ground May be N Korea once again..but it will be the end of the US as we know it, more so than the Obamanation has done so far.

One thing to remember,  China "cooks their books".
How long can they keep the charade going?

All of these same things were said about Japan in the 70's and 80's.
First,  in the 60's,  everything from Japan was cheap junk.  70's, they made little tin cars and everyone started buying them.   Then they went high tech in the 80's.

What do they call the Decade of the 1990's in Japan?
"The LOST decade".  Japan saw 0% growth in their economy for almost 10 years.  
And Japan didn't cook their books!

China has grown at a vey rapid pace,  almost too good to be true.
They have used unfair trade practices, disallowing US firms into their markets,  as well as "dumping" goods on our shores.

If we stop buying their stuff,  they go back to poverty for the masses.

They need us badly,  very badly.   We are their major market for manufactured goods.  Period.
Also remember,  as China grows a middle class,  it starts sucking the money, and Chinese goods become more expensive to import,  and American goods look better as the cost savings dry up.
India starts undercutting the Chinese goods,  then,  China is in the same pickle as everyone else.

Japan undercut US made goods,  Taiwan undercut Japan,  China undercuts Taiwan,  India is next up to undercut China.....and so it goes.   It's a big game,  and we benefit from the competition and lower cost goods.

- - -

China buying gold?   Sure, they may be buying gold,  as they should during these times.
Even large governments need to be diversified.   But i will offer this:  if they were buying gold by the metric-shit-ton,  as the media would lead you to believe,  the Gold prices would go through the roof!
So far they haven't.

Capitalism is funny thing,  just as Japan got sucked in and their economy became intertwined with the west,  so has China.

Want to know what we are going to do to China?  We are going to devalue our currency to service our debt.   Raise interest rates,  or print money.  I say we'll print money,  it's Obama's style, it's more smoke and mirrors than Fed.Gov raising rates.  maybe we'll do both?

POW!   When we do that,  each dollar out there is now worth less than it was a year ago.  
So if China is holding mega-gobs of US dollars,  they will suffer the devaluation just as all of us Americans will.    China will then have to spend more of the low value US dollars to buy stuff.

Oil is traded in US dollars.  if we devalue our currency,  China's price for Oil goes up.

As someone said,  it's a tangled web and it won't do China any good to tamper with their relation with us.

China cooks their books and  their real costs are soaring.  
At the same time,  we are importing far fewer Chinese goods.   Their docks are loaded with contaienrs full of goods that they cannot sell right now.
American's have tightened their belts,  and China is feeling the squeeze right now.

The baby-boomers were the highest consumptive group in our country, in history, but they are now retiring and curbing their consumption drastically.  Another bubble bursting,  the US consumer bubble.   No one is talking about it because it has long reaching implications for our econmy as well as the entire world.

I predict that China is very worried right about now.