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Bernanke: China's debt holdings not a problem
China owns 4% of our federal debt. It's nothing to worry about—according to the Chairman of the Federal Reserve. Here's the article.
LINK
China's premier, Wen Jiabao, answered several reporters' questions last Friday. Because China's holdings of US dollar assets seems to be on everybody's radar, I thought this exchange with the Wall Street Journal would be of interest.
Wall Street Journal [excerpt]:
...the government has announced plans for a new agency to manage the diversification of China's foreign exchange reserves. Can you tell us what kind of assets this agency will invest in?
China's Premier Wen Jiabao [excerpt]:
In the 1990s, China did not have enough foreign exchange, so we borrowed foreign exchange from the IMF. The IMF only lent us $800 million. Now our foreign exchange reserves have exceeded $1 trillion, and how to make good use of them has become a new issue for us.
China practices diversification of its foreign exchange reserves to ensure their security. Yes, we do plan to set up a foreign exchange investment company, and it will not be under any government department... It will be under government oversight and regulation and should preserve and increase the value of the assets...
I know by raising this question, you may wonder whether the overseas investment to be made by this newly established agency will affect US dollar-denominated assets. China's foreign exchange reserves mainly consist of US dollar denominated assets. This is the fact. China's holding of US dollar denominated assets is mutually beneficial in nature. The setting up of a Chinese foreign exchange investment agency will not affect the US dollar-denominated assets. [emphasis mine]
It wouldn't be logical for China to invest their dollars in a way that diminishes their value. As some have been trying to point out, even if that were feasible, it would be the financial equivalent of shooting oneself in the foot, or worse. It just wouldn't be logical.
I do understand that logical economics isn't always what drives politicians; however, the massive worldwide market in dollar-denominated assets will make it difficult if not impossible for any single country, including China, to dent the dollar by much—even if its politicians were willing to risk shooting their country's foot off. [In fact, I think the only country in the world whose politicians might be able to pull that off is the USA.]
Balanced budget trend: still June 2008
LINK to larger chart
Originally posted by etotheitheta
Outside of its own citizens, the national debt is an indicator of who the US owns. I see Japs, Chinkes, brits, and koreans at the top. LOL! We own them!
Originally posted by etotheitheta
Holy #, two aircraft carriers?
What does that make, two total, nine less than the US, and per capita inferior to the # we sold to mexico that won wwii?
Originally posted by mel1962As far as the foreign debt you did not include the trade deficit with China, it is a big problem! FYI the chinese are building aircraft carriers with our money! They have over a 1 Trillion in Dollars or 10% of GPD!
U.S. Heading For Financial Trouble?
The cancer, Walker says, are massive entitlement programs we can no longer afford, exacerbated by a demographic glitch that began more than 60 years ago-- a dramatic spike in the fertility rate called the "baby boom."
What would happen in 2040 if nothing changes?
"If nothing changes, the federal government's not gonna be able to do much more than pay interest on the mounting debt and some entitlement benefits. It won't have money left for anything else – national defense, homeland security, education, you name it," Walker warns.
"The Wall Street Journal for example calls you 'Chicken Little,' running around saying that the 'sky is falling, the sky is falling,'"
Originally posted by mel1962
The Real Budget Deficit!
"What the comptroller of the United States is telling us is that as bad as a $4.6 trillion federal budget deficit and a $53.1 trillion GAAP negative net worth are today, the situation with the Bush administration federal budget deficit might even be worse yet if the government’s overall bad accounting procedures could be fixed. With truly accurate GAAP reporting by the various administrative agencies, the 2006 financial report of the federal government would have shown even larger deficits and a larger negative net worth, hard as that may be to imagine."
Originally posted by edsinger
Originally posted by mel1962
The Real Budget Deficit!
This fails to recognize that we are on pace to have revenue outpace spending, that is as long as we don't start raising taxes and screw it up.
Originally posted by mel1962
Unfortunately you don't understand business accounting practices, the long term liabilities (SS, MED, etc.) are going to outstrip revenues once the Boomers start to retire. The real deficit is the real deficit. The budget numbers from the government over recognize revenue and under recognize long term obligations!
Originally posted by mel1962
Edsinger
Just to get my point across in plain english, the feds currently count the SS & MED revenue against the total budget. Right now SS & MED revenues exceed expenditures, so the excess is used against the deficit. But, by 2018 the SS & MED revenue will go into deficit also.
You have a good point about the Boomers spending tax and having to pay additional tax on their 401k's. I would hope that 401k revenue will exceed SS & MED expenditures, but I doubt it.
posted by edsinger
Very good! But it still doesn't explain that given a reasonable expectation of growth, that the GNP in 25 years will be near 50Trillion at least, so the US government will spend around ~25% of that say 12.5 Trillion, on budget items. See this talk of debt is fine but lets put it in perspective will we.
posted by Edsinger
“ . . good points . . I too thought the 8% was a bit high . . even at 4% if the tax receipts continue to grow faster than spending, things look much better in 25 years. [Edited by Don W]
One thing I can agree on is that the rich pay less in taxes with the loopholes available to them. This is why I like the flat tax, they can't get out of it unless they don't spend it, which is unlikely.
Are we in bad shape? Look at this one especially 1946.
Is there too much being spent on defense?
But this is all moot, should we actually pay off the debt? Well my gut says that to do so would be good but historically that might not be the case.