Ask Me Help Desk - A thought experiment

Those who know me on these boards may know I've always been someone concerned with the soaring deficit and debt. I was concerned about it way back in Bush's administration, now I'm climcing the walls.

This leads me to the thought experiment, what do you all think would happen if all the foreign investores (i.e. China) just said "enough is enough" and called in all their debts and left us high and dry.

What would happen? Would we all be Chinese?

I really don't know.

This point of this thread isn't to debate whether it will happen, it is to explore would would happen if it did.

Thoughts?

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Originally Posted by andrewc24301

What would happen?

Hello andrew:

Simple. The currency will collapse and we'll have a depression. We've had 'em before and survived. We'll survive this one.

excon

PS> Buy gold.

I remember in the 80s we were concerned about foreign countries owning soil and business in America. Japan was the biggie. It turned out that the biggest silent country that had more ownership in land and business was England. Not now.

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what do you all think would happen if all the foreign investors (i.e. China) just said "enough is enough" and called in all their debts and left us high and dry.

I was worrying like you for many years about this. What changed a lot of my thinking started after reading a National Geographic on China.

The country in so many places doesn't resemble the China it was 30 years ago. They are heading so much towards Capitalism and probably don't even realize it. What helped confirmed this was the shows on T.V. and the documentaries. If we fall so will there whole economy. Look what the ripple effect we started there since the "2008" depression..

They only one child factor is also back firing on them. The New generation comes form a 1 child family and is basically spoiled in the sense that he or she gets everything. Think of 1 grandchild et. This new generation only knows they like the good life and can actually see it and live it.

Think of them as the new spoiled generation that grew up with the Internet etc. They aren't brain washed so easily-dictator/communism sales.

They have over billion people. They are expendable by numbers as it is now. A war would cause such a ripple effect that they along with our economy will collapse.

They only factors I see to simplify this is think of investing in a big housing development and you are in so deep that you can't sell it off or make the run on the bank so to speak. The bank just closes. The U.S. says sorry. We aren't going to pay you.

The last figure I heard was they buy 55 billion of raw goods from us and we buy 230 billion from them.

Think of the U.S. as a welfare country and the welfare checks comes from china. How is that problem solved.
1. Hope they (U.S. ) gets off welfare or the checks will brake the bank
2. Take over the welfare houses and kick people out. ( not likely)
3. Go to War and take back the investment seizing property and assets. But the problem is We historically have the toughness and the Guns to prove that we aren easy to push around

I think they are in to us so deep that they are praying We dig ourselves out of this which I doubt

What blows my mind is think of all the loans we make to our countries and them to us and when did everyone ever call in the laon?. I haven't heard one yet and going to War over it. I think China knows they won't get paid back in full ever. I also think they are shrewed businessmen and look what the relationship they Bought from the U.S. and how much profit the made of our buying there exports. They learned from Japan and stole the market chumming up to the U.S.

That's an interesting thought boat. And one I have contemplated too. In addition, I can't imagine while the Chinese are "hoping" America will fail.

I figured it like this:

The Chinese own a lot of American investments. Much like investments in the stock market, if these loose value, money just up and vanishes like a fart in the wind.

The interesting thing is, the higher inflation goes, the lower value of the dollar, the lower value of the debt. A strong dollar would equal a greater payout for foreign investors such as China.

So far as I can see, the deficit is valued in American dollars. If the bottom falls out and the value of the dollar collapses, then in retrospect, the debt just declined due to it's value. Although on paper, it holds the same dollar for dollar amount, the value of the dollar declined.

Such as buying 1000 stocks in company A for $1 each. If those stocks fall to 25 cents per share, then suddenly the value of the portfolio just went from $1000 to $250.

The bad news is if that were to happen a loaf of bread may cost $15.

The good news is, the lower value of the dollar, the more potential we have to create jobs here. Things may very well be made in USA again because our weak dollar would intice companies to set up shop here again.

The bad news is, a $30 per hour job in 2012 may be as valuable as a $5.15 job in the mid 90's.

We shall see.

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Things may very well be made in USA again because our weak dollar would intice companies to set up shop here again

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Andrew I been saying this for years. If we collapse enough to EQUAL the labor cost to actually compete with foreign countries that will make Us a world superpower again. We have the technologies and the experience the only thing missing is our labor is too high. We priced ourselves out of the manufacturing market and just turned into consumers.

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Such as buying 1000 stocks in company A for $1 each. If those stocks fall to 25 cents per share, then suddenly the value of the portfolio just went from $1000 to $250.

Not sure of the math here if our dollar shrinks and they want the actual dollar amount back of the loan. If our dollar shrinks then 100.00 back to them would be 500 from us in our lower dollar value. If its just stocks then the Math works here.

Could you imagine if the 100 bill was now a 10 and had the same buying power as the 100!! We out paced ourselves and in turn out of since with the rest of the world in economy balance/exchange

The Chinese need our markets so they would not make that decision. If they stop buying debt we stop buying Chinese product . The fate of our economies are linked to a degree because of this reality . But it ties our hands in some ways . Note that no one in the US had a reaction to human rights abuses even as the Chinese crushed the Uighurs protest this last week .

Anyway our immediate concern is that we have issued over 2.5 trillion in new debt and I'm not sure we have a buyer out there to purchase it. What will happen is that the interest rates will have to go up to make the debt more attractive to sell and this will slow down any economic recovery they anticipated by the infusion of cash into the market.