So this Recession...

[KukriKhan]

Originally Posted by KukriKhan:
...I submit that it happens all the time on an individual level, and has happened on a nation-to-nation level too. What if China or SA or UAE, holding trillions of us paper (on redemption), presents that paper for early redemption because their people are starving due to some natural disaster (say), and they need cash to feed them?

Could we cover even the nut, much less the vig?

Far-fetched? Maybe.

Hope for the best. Prepare for the worst. Which US State will we give up to satisfy an early-call debt? Cuz, in the end, all we really have is land, people who will work, and trust in our word.

I believe that China holds around 10% of US debt. Whereas this is a sizeable amount, other countries hold more as a group.

The difference between an individual demand and a national one is, of course, scale. If the United States defaulted on a debt as described, the resulting financial cataclysm would engulf China (and us all) to the extent that such an early call on bonds would be unthinkable to them.

I think I am right in saying that China is keen to buy US bonds because she needs her currency linked closely to the dollar, rather than too free floating. As we see from this recession, everyone needs the United States to be strong economically, and right soon. That may not last forever, but most countries interested in continued eating would be keen on any decline happening very gradually, as it was before the bankers decided to go mad.

BTW, if you lot think you have it bad, consider Biffo's Paradise: it's predicted that Ireland is likely to see the economy contract by 10% this year and close to 18% unemployment.

China wants their US debt holdings 'guaranteed' 'Ill'ry had best drag along the Treasury Sec & Fed Head with her to Peking.

And so it begins. Maybe it won't take their population starving, or a natural disaster for the PRC to decide to cash in early. Then what? Who's next to demand early payment?

This 'spend your way out' theory only works if the off-shore lenders say "OK, we'll buy that debt."

And trust me, the US administration isn't done yet with multi-trillion (I had to watch my fingers type that word, they being un-used to it) dollar spending plans. Wait'll late spring and early summer. We still have housing and other industries to bail out, of unknown valuation, and questionable risk.

Kukri's armchair prediction: By Valentine's Day 2011 (2 years hence), fed spending will be limited to defense and homeland security, and US taxes for all will have risen to an average 45% of AGI. This to not default on the few remaining offshore loans. The US gov't will be "land rich, cash poor". Citizens will be "land poor, cash poor".

Hey Bartender: toss a splash of 'doom' into that shot of 'Gloom', please.

-edit-
I hope I'm wrong - that I'm just an ignorant, sorta slow on the uptake, under-informed man on the street seeing only a tiny bit of the big picture; and that the smarter, better informed guys in charge can work their way thru this.

[Banquo's Ghost]

Bartender, ixnay the Doom and Gloom, please. Fix my friend a fine brandy. He needs cheering up.

Kukri, I think you are being too pessimistic. The article you refer seems to be about the Chinese trying to influence US policy away from the possibility of "quantative easing" should the stimulus not work. QE is wonkspeak for printing money. They would rather that President Obama doesn't follow Zimbabwe's lead.

They are hinting that the endless purchase of bonds that has characterised the last few years cannot last forever, not that they intend early redemption. As I noted before, for China to take that step would bankrupt the world economy and them - there is absolutely no point. China already has its own huge problems growing, particularly unemployment. They need to get the world (as especially the US) buying their goods again as soon as possible. Putting their main customer in the poorhouse for 30 cents on the dollar would be suicidal.

What the "warning" does do is remind Obama that there are limits to splurging money, even in the United States. One has to borrow the money from somewhere, and that somewhere hasn't a limitless appetite. In other words, make the package you've got work, otherwise find some other method to address the downturn - there isn't another trillion or so available, and if you try and "magic" some up by printing dollars, you'll definitely close off any tap.

We're all in this one together, it's the characteristic of this recession. None of the big players can afford to screw over another, or we're all living in tents.