Metropol

Debt…American style!

Should we be worried?

Spurred on from a previous post about the housing bubble in another thread, I thought I might start a discussion on the possible future of the biggest economies in the world. Namely China, Japan and US.

The US is a worry IMO. With $900 Billion in debt held by China and Japan (China holds $200 billion in US treasuries and Japan $700 billion) that’s without all the treasuries held by OPEC countries needing something to spend their swollen cash reserves on. Once we’re done adding it all up, it equals $1.9 trillion. That’s a 40% increase in over 10 years. The maths gets increasingly worrying when you consider the trade deficit and how it would take the US growth of nearly 3% (after inflation) year on year just to simply catch up with the spiralling debt.

As if you weren’t worried enough, I did a little digging and discovered that it in recent years, it is not China and Japan that have been the chief purchasers of US debt, but instead small Caribbean nations which in the past year, have purchased some $65 billion dollars in treasuries. (Compared to $1 billion from China. Japan actually began selling of US treasuries the value of $10 billion this past year).

How are these small countries funding such massive debt? Answer is; they’re not. The US fed cannot trace the originators of these funds who use the Caribbean clearing houses as a means to circumvent regulations. One argument suggests that it is in fact the US themselves who are pumping money into these clearing houses so as to artificially prop up their currency. If true, this has horrendous ramifications in the future.

Another concern for countries aligned with US monetary policy is the growth of China. Its estimated that by 2050, China will have overtaken the US in GDP terms as the biggest economy in the world. This will place pressure on the dollar as the world default currency. Where does this leave us? Well with the majority of US debt soon to be owned by more nefarious nations such as OPEC countries and mystery reserves in the Caribbean, the US economy looks doomed to collapse in my opinion and we will no doubt follow quickly behind.



Or I could just be wrong?

Although economics and finance is an area of study at university for me - I'm going to leave those issues aside at the moment.

The US has a massive problem, once such a forward, powerful and intelligent country - it no longer is. Countries like China are going to push ahead and simply are going to abuse their cheapness in production and manpower to their own benefit.

I think that they need to open their eyes and realize that there is indeed other countries around the world apart from themselves - however its not just Europe and China (watchers of CNBC in the US will see that when there is talk about international firms China is the main talk and Europe is the other, however Europe is just brushed aside - i.e. jokes are often made about the state of the German economy) there are other countries in the world that are productive and powerful.

However what always sort of shocks me is the way that financial markets work. Usually if consumer confidence levels are a little weak in the US, its taken as all hell breaking lose and domestic economic indicators are ignored - surely the US being a super power this is important but why should it rank above all the other indicators and the 6 other billion people in the earth?

Debt is a massive problem for the US, being the largest free market in the world doesn't stop them from being the largest idiots in the world. Priorities and spending have to be looked at, no point in giving a tax break here and there. It simply isn't going to work.

What an interesting thread. The state of the US economy has concerned me now ever since the so-called fiscally conservative Republicans took office, and their stupid reaction to the very suspicious 9/11.

The US is taking as much in in tax as they were in 1999. However, government spending has risen 34%. That's one hell of a hike for any country, particularly so the world's largest economy.

Added to that, there is a huge house market bubble over there too, with some of its excesses outstripping even ours. People are lending against equity to fund a profligate lifestyle. Pretty soon, as in the UK, the vast majority of economically important areas of the US will become unaffordable for first time buyers. The housing market/bubble is effectively a Ponzi scheme, and all such schemes collapse, especially when the bottom rung is not constantly renewed.

A summer of bankruptcy is predicted in the US as people struggle to pay their mortgages and the vast majority of credit cards increase their minimum payments from 2% to 4/5%. Debt laws have been recently tightened in the US too to make them far more punitive against defaulters.

What with tens of millions of illegal aliens pulling down wages through increased supply, the off-shoring of millions of jobs to Asia and the neo-con racist administration planning more wars in Syria and Iran, what is it that will push America into a depression?

Tighten your belts, friends. The world is going to get poorer, less stable and more violent in the next 5 years.

All the factors (credit card debts, debts from other countries, government debts, etc) really do add up to a situation that's ALREADY bad, it's just the banks are covering it up by claiming that debts will be paid back thus keeping the graphs at a nice upward incline :) And we all know that there are lies damned lies and statistics

The problems have already hit in theory, it's only really a matter of time before they start to affect everyday civilians. I partially compare today's economic situation with America's Boom years -- lots of money flying around that doesn't really exist, and an exponential population problem to boot. It's just scary. There's no doubt that money is going to get more and more inflated and hence more and more value is going to be placed in physical assets. Melting down coins? hmmm...

There is still a movement in America which advocates the reintroduction of the Gold Standard. But with so much fictional credit and liquidity, it is unlikely it will return anytime soon. I think the current gold reserve in the US would just about cover a third of the total debt! Thats if the gold reserve figures are correct. (The US gold reserve was last audited in the 1980's so who knows how much they really have right now...)

In the mean time, the short term-ism is surely going to bite the US punter and to a lesser extent the western world in the ass.

Well Winston Churchilll learned the hard way that returning to the gold standard, particularly at too a high value, results in a long term economic downturn caused by deflation and massive unemployment.

<http://www.gold.ORG/value/reserve_asset ... 25jul.html>

And we all know that ivesting in gold is "safe as [today's] houses". Its only a matter of time before the equipment's available to change metals into gold...

cdd wrote:And we all know that ivesting in gold is "safe as [today's] houses". Its only a matter of time before the equipment's available to change metals into gold...

Who said it isn't?!

There was a bloke in India a few years ago who managed to create a petrol-like solution - but was mysteriously murdered! I wonder who could have done a thing like that?

BASTARD GREEDY OIL COMPANIES - THAT'S WHO!