Posted on 07/21/2010 6:45:43 PM PDT by moneyrunner
Foreigners hold nearly half of the US debt. The Chinese, who hold an estimated $1.3 Trillion of our debt, have a big stake in our creditworthiness. Would it surprise you to learn that ...
The US has been stripped of its AAA credit rating – by a Chinese company.
Dagong Global Credit, the “most influential founder of China’s credit rating industry” maintains an “AA” rating on the United States with a “negative” outlook.
We're less creditworthy than Luxembourg, but still ahead of South Africa.
Thank you Team Obama.
(Excerpt) Read more at moneyrunner.blogspot.com ...
If our creditworthiness is so aweful, why is the 10 year note hovering just below 3 percent?
Exactly,
For all their bellyaching, the Chinese have no where else to go.
No replacement basket of international currencies is going to be as good as an investment in the U.S.
When the people we're borrowing money from start to be concerned about our ability to repay, they'll demand a higher interest rate. We have not gotten there yet, but we're headed in that direction.
That's not exactly true. They have already begun buying gold. They have also been buying up commodities (oil reserves, etc).
There are lots of things people can put their money into other than currency.
If our creditworthiness is so aweful, why is the 10 year note hovering just below 3 percent?
deflation?
Actually doesn’t it mean we will pay higher interest rates on that borrowed money?
“deflation?”
That certainly might happen in the next year or two but right now we are just above 1% inflation. If unemployment continues above 9% for another 18 months, I can see us going negative.
I think the real reason the 10 year note is so low is because the entire globe is experiencing a lack of confidence in the private sector. And while we are not in the greatest shape vis-a-vis our debt, we are in the best long term shape with the most diversified economy and most stable political system.
“That’s not exactly true. They have already begun buying gold. They have also been buying up commodities (oil reserves, etc).
There are lots of things people can put their money into other than currency.”
If China stops buying our debt, they are screwed. We are financing their 6 to 9% GDP growth per year with imports from them. If that GDP drops even 1% that translates into millions of lost jobs in China. If that drops to 3% or below, they have a revolution on their hands. They have ZERO intention of ever pulling back from financing our debt.
“We have not gotten there yet, but we’re headed in that direction.”
While that is certainly true I would argue that we are a long, long way from that. We reached a debt that was 120% of GDP in the mid 40s and we were able to inflate our way out of that. That’s the beauty of having a debt in one’s own currency. EU countries unfortunately don’t have that luxury which is why Greece, Portugal, Spain, etc are screwed. On top of that, with a fiat currency, the FED has a million tools that can be used to push up demand and since we are at the zero bound, not worry about out of control inflation (we could use 3 points of that right now anyway).
Have you bought groceries lately?
Have you seen the value of real estate lately? Have you seen the value of condos at the beach in the last 2 years? $1 million homes now being sold for $275,000. Same is happening with commerical real estate.
Yeah, deflation.
Whatever that means.
I wouldn't actually call that deflation..... just because someone was suckered into paying a higher price in the past couple of years doesn't mean that trend will continue..... especially when you have fedgov essentially backing loans for those who are... shall we say not credit worthy. Of course the price will go up on big ticket items when the average person has to compete with government's "free money." Throw in house-flippers and HELOCs and you end up with a housing crash.... ie market correction.
Items like gold, silver, ammo, and guns have certainly increased.
Lastly, you can't eat real estate... and many of the banks aren't proceeding with foreclosures.
Because the Federal Reserve is artificially propping up Treasury notes by printing money and buying them. In reality, interest rates for T-bills should be around 12%.
Stop buying anything non essential now folks. Pay down your debts and buy gold. Obama’s economic policy of spending us into oblivion is working as planned. $34 billion more spent today
Not here in NYC, but we are something of an "outlier" due to all of the Wall Street cash and foreigners continuing to buy.
I was under the impression that banks were all parking their funds in treasuries since there are no private sector investment opportunities. In addition to this, sovereign wealth funds and worlwide investers and banks are buying them up for the same reason.
Do you have a link to data showing the that the Fed is buying an unusually large proportion of notes? I’m genuinely curious. They historically account for 50% or more and the last I checked they still have that proportion. The big influx this year has come from the private sector and overseas.
“we’re not “so awful” it’s just that we’re not AAA any more according to the Chinese”
You’d do better picking stocks out of a fortune cookie.
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