Real reason for complaints about US Dollar

[sinophile]

http://i30.tinypic.com/2gv10ns.jpg

Chart: (by John Mauldin).

I'm China or Russia and in looking at this chart I'm very concerned. Not because I'm concerned my dollar holdings will devalue, or worries about US debt default.

I'm worried I will need to borrow and there won't be anyone to lend at a price I can afford. I look at this chart and think global lending capacity will be fully consumed by the US, Japan, UK and EU.

Where will I go when I need to borrow and what will I have to pay? And how will I compete with all these democratically elected states for lending when I can't match their financial transparency and collateral quality?

[ramthor]

Not because I'm concerned my dollar holdings will devalue, or worries about US debt default.

Oh, no? Not even when the Federal Reserve is a principle buyer of U.S. Treasury debt instruments?
That's printing empty dollars, you know.

U.S. T-Bills actually went negative awhile back. That means for every dollar invested, you get
back 99 cents at maturity. They still sold, but only because the US$ was falling faster than 1%.

You've heard the philosophy: If you borrow $10,000, the bank owns you. If you borrow $10 million,
you own the bank.

[Panchito12]

Chart: (by John Mauldin).

I'm China or Russia and in looking at this chart I'm very concerned.


Well I'm America and in reply to the Chicoms or Russkies "concern" we say:

Frankly my dear, I don't give a damn!

[sinophile]

Oh, no? Not even when the Federal Reserve is a principle buyer of U.S. Treasury debt instruments?
That's printing empty dollars, you know.

Nope. Not yet they aren't.


U.S. T-Bills actually went negative awhile back. That means for every dollar invested, you get
back 99 cents at maturity. They still sold, but only because the US$ was falling faster than 1%.

Relative strength. Important concept you might want to explore.


You've heard the philosophy: If you borrow $10,000, the bank owns you. If you borrow $10 million,
you own the bank.

None of your points are relevant to my post.

[budgie]

It doesn't take a financial genius to notice that this talk about replacing the dollar as the default international currency is a knee jerk reaction to the current crisis. The dollar is stable, it has had its ups and downs before and will bounce back. Any suggestion of change is mere fantasy, especially coming from places like Russia or China whose currencies are either pegged, pitifully weak or not even floated on international exchanges.

[LRPV]

Excuse my ignorance, my knowledge here is limited to headlines. I thought the Chinese had trillions of $US in forex reserves. If there is a credit issue, couldn't some of these reserves be used to pay for the higher than desired interest rates, just for the short-term to assist China trading out of this crisis?

[sinophile]

Excuse my ignorance, my knowledge here is limited to headlines. I thought the Chinese had trillions of $US in forex reserves. If there is a credit issue, couldn't some of these reserves be used to pay for the higher than desired interest rates, just for the short-term to assist China trading out of this crisis?

There is increasing speculation Chinese defect spending could be over 50% of GDP. At that rate China may need to tap the credit markets.

[Fat Lazy American]

There is increasing speculation Chinese defect spending could be over 50% of GDP. At that rate China may need to tap the credit markets.

Do you mean overall Chinese debt is going to approach over 50% of GDP? Or that a year's budget is going to produce a deficit of 50% of GDP? Because the latter would be astounding.

[Blue_0]

Do you mean overall Chinese debt is going to approach over 50% of GDP? Or that a year's budget is going to produce a deficit of 50% of GDP? Because the latter would be astounding.

I am curious as to the answer of this question also.?

[sinophile]

Do you mean overall Chinese debt is going to approach over 50% of GDP? Or that a year's budget is going to produce a deficit of 50% of GDP? Because the latter would be astounding.

I mean its been suggested the Chinese are running a budget deficit whereby they are deficit spending 1/2 their annual GDP. This is the speculation among numerous China watchers I follow.

[LRPV]

I mean its been suggested the Chinese are running a budget deficit whereby they are deficit spending 1/2 their annual GDP. This is the speculation among numerous China watchers I follow.

If this is the case wouldn't that kill any possibility of Chinese currency reform? I suppose the other thought is whether 50% to China is as devastating as 50% to Australia.

[sinophile]

If this is the case wouldn't that kill any possibility of Chinese currency reform? I suppose the other thought is whether 50% to China is as devastating as 50% to Australia.

To the extent you agree China is utterly reliant on export-related jobs for social stability, then - yes - the RMB is destined to remain undervalued/manipulated. Conventional wisdom is no appreciable RMB revaluation in 2009 and probably 2010.

The more interesting question... China has huge untapped productivity gains it could leverage if subsidies for domestic businesses were eliminated. Does it make sense for China to blow its considerable creditworthiness to maintain an unsustainable export-led status quo? Or, would it be better to force Chinese businesses to compete with international competitors for Chinese consumers and reap the productivity gains the open competition would generate (not without considerable pain)?

China has enough untapped productivtiy to grow out of a huge debt burden. What's missing is the confidence and sense of security to let economic reckoning begin.