Posted on 07/29/2002 7:41:35 PM PDT by Enemy Of The State
| China has risen from its 4th place to become the second biggest bondholder claiming US$82 billion worth securities in the US. Japan still with US$317.3 billion securities on hand stays atop. The UK comes third with a sum of US$49.4 billion. Hong Kong takes the 6th place and China's Taiwan Province 9th alongside the others as known from US official data lately released. |
While the service sector is definitely overrated by most economists, it can certainly create wealth. It can attract foreign capital, and information is value adding.
Argue with Colin Powell on that. The United States still officially considers Taiwan to be a renegade province of China.
You mean like MGM or Rockefeller Center? The Japanese screwed up, when they were in this position, by buying too much. Liquidity is good. Commodity values swing much further than US dollars.
People who already own them won't be affected unless they sell prior to maturation. But potential buyers wouldn't be as prone to buying them.... making them worth less. Meaning the yield would have to increase in order to sell the same amount. Meaning the US gov't would have to pony up and pay higher interest. So it doesn't screw individual AMericans, except in the sense that the debt incurred by gov't is ultimately borne by individuals.
... the U.S. government (it has to pay back face value either way...
Don't forget the interest it pays. Remember a major reason folks buy those things is to get the interest.
Actually, people would be prone to buy more. The supply of bonds trading on the given day China decided to sell would increase, thus lowering the price. The effective yield therefore increases, making the bonds more attractive. That's why I said they'd probably be bid right back up again the next day. The US Treasury market is the most liquid securities market in the world. Not only would it not influence the price too greatly if China dumped $81 billion on the market (out of several Trillion dollars outstanding), but the liquidity of the market would ensure that only economic and financial fundamentals would affect the long-term bond price, not China merely dumping $81 billion on the open market. Don't forget the interest it pays. Remember a major reason folks buy those things is to get the interest.
Right. Good point. The problem with China, or any corrupt totalitarian dictatorship, owning our debt is that we pay them interest, effectively helping their regime. That is a moral problem, though, not necessarily an economic one.
Think of it this way. You are thinking of buying a government bond at $99 that will be worth $115 when you add up all the interest to be paid over the years and the face value. You think it's a sound good investment, but you don't want to pay that much. Then the Chinese government sells all their US Treasury Bonds, and the bond that was $99 is now $95 (more drastic a price change than would occur, but for the sake of argument...). What would have been a return of $16 turns into a return of $20. Suddenly you are more likely to buy that bond, because it is more attractive, assuming the financial soundness of the US government is still the same as before the Chi Coms sold. Now, the poor sap who was bought the bond at $99 is out $4, so he loses value.
Where it wouldn't be bid back up would be if it was bid down based on economic fundamentals (I.E., rising inflation) or on the financial soundness of the U.S. Government. However, with the US Treasury bonds, it is doubtful that it would be bid down on problems of financial soundness, since US Treasuries are considered de facto risk free investments.
Any change in price based on economic or fundamentals actually represents the correct net present value of the investment. Any change in price based on China dumping $81 billion in a single day represents a short-term shift in supply, which will be corrected.
Think Pebble Beach.
a Japanese investor who had bought the Pebble Beach public golf course for $1.2 billion, planning to convert it into a private club with memberships priced at $350,000. But the county government nixed the plan, and the investor unloaded the property for barely half of what he had paid for it four years earlier.
The Japanese always make tons of money selling us cheap cars, stereos etc. then they lose the money in the market (art, real estate, treasuries) We get the best of both worlds. I expect the Chinese to do the same.
Actually, if the market rate remains the same the price must also remain the same. I believe that after the price drops as the Chinese sell, bidders will step up and the price will come back up/yield will go back down.
The danger that the chicken littles see is that the price never goes back up and the US has to pay higher rates to finance our deficit. I'm not gonna lose any sleep over this.
in bybone days a country would never let things like this happen. much 'imperialism' in the 17 and 18th centuries was merely a european nation trying to make another nation make good on its obligations, or make it relinquish 'stolen' corporations.
Yes this is precisely the discussion.
So the silversmith engraver that takes your $500.00 revolver, carves on it and charges you 300.00 for services which then makes the gun worth 1000.00 doesn't add wealth ??
Willie this is your best post ever. I'm curious, how does wealth get dissipated?
These service sector people buy tangible goods, don't they? The income they receive for producing the services you disparage doesn't get placed under their mattress, does it?
How about the saintly U.S. autoworker who makes good old American cars with American steel? When he takes his paycheck and hires a babysitter for his kids so he can go to the movies with his wife, is that money he paid dissipated?
If the babysitter takes the money she earns and buys a car that the automaker built, is the wealth suddenly undissipated?
Actually, Hollywood manufactures a product: exposed film in a can. (Along with video tapes, DVDs, etc.) There is quite a bit of labor involved with the manufacture of this exposed film. It is value-added and creates wealth. It's not a service.
Interestingly, if not for the transformation of the exposed film, the acting, directing, etc. would be a service. And as is typical of service jobs, the performance would have to be repeated over and over and over and over again, for low pay, for anybody to make any kind of living.
Services do not add value, they do not create wealth.
and information is value adding.
Information does not add value.
It may however, facilitate value-adding activities to be utilized more effectively.
It may also facilitate services to be performed more efficiently.
But it does not add value in and of itself.
I guess there aren't very many service jobs that don't add value.
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