Hm, but especially the people in China are not that wealthy. Of course the analogy shouldn't be taken as litteral in that people are starving because of it, but they are living below their standards to allow America to live above its standards.

 

 

 

 

 

 

 

I see the difference, what you are looking at is the individual, whilst I am looking at the country as a whole. It is true possibly people in China are living at a lesser living standards but is the American responsable for causing that? The way I could see that happening is the competition between domestic supply and the US's exports to China however China does exercise forms of protection which increases the government's revenue and protects infant industries. That's all just speculation but it is an example as to how they are living below their standards as a result of Americans.

 

 

 

 

 

 

 

All that is concerning the individual, now how about China as a whole? Specifically their governement. They are lending money to America and as a result of this, there is a lot of trade between America and China, but this lending of money mostly affects America's ability to import, meaning the goods it gets from China. The previous example relates to the other direction, meaning America's ability to export. What I mean is that the fact that American's standard of living affecting China's standard of living (for the individual) is not affected by America's imports from China and therefore is not affected by the fact that they are lending tremendous sums of money to America. I am however curious why this is the case?

 

 

 

 

 

 

 

Because they think it is good for them, which is what I am arguing against.

 

 

 

 

 

 

 

I didn't really justify my point there, apologies for that

 

 

 

 

 

 

 

 

 

 

The problem is that this lending of money goes on not in their own currency - which would be normal to hedge against the valuta risk - but in the foreign currency. I am not against world trade, I am against funding the overconsumption and "living above your standard" from americans and I say that it is very possible that non-americans will eventually pay the cost of that, because the money we lend out will be worth less when it is paid back. I am also saying that non-american countries as a result may not profit from this by artificially boost in their export at all in the end.

 

 

 

 

 

 

 

This is an interesting point for two reasons. First of all I understand your argument much better now when you refer to the individual, which is something I havn't thought much about as I am looking at the country as a whole. The effects of the dollar being worth less as you said, is already being seen.

 

 

 

 

 

 

 

Second of all, looking at an outline of what is happening and this time shifting the focus to the country as a whole

 

 

 

 

 

 

 

America has a budget deficit so they take loans from other countries. Thanks to these loans, America imports a lot from these same countries which is good for them because they need the imports, however (and correct me if I am wrong but I think this is what you are refering to) this means that the budget deficit gets greater and greater and after a while will burst.

 

 

 

 

 

 

 

This is the reason why people are so concerned with the budget deficit, as you said the money has to be paid by someone however in the short term, China (and other countries) are not worried as they are having an increase in their exports. Now the real problem is how do you avoid from this budget deficit to burst? Obviously loans are not the answer but there are things that can be done about this, and this is why I say that the collapsing of the dollar is an unlikely event. Some of these reasons are a bit off topic but they concern the war in iraq as well as the tax cut issues. Some lesser develloped contries have a huge budget deficit that they literally cannot pay off (the intrest rate of their loans exeeds their GDP) so their currency might burst if they can't get help. The US has the largest economy and for that and other reasons, I believe the US will find a solution to solve the problem internally. But for the moment, as far as the creditors of the US are concerned, they have nothing to worry about in the short term

 

 

 

 

 

 

 

Now the debate just boils down to "do you believe the US has the means to pay off it's debt?"

 

 

 

 

 

 

 

All of America's loans are noted in dollars - if the dollar price falls, the one who loaned the money will loose money when the loan is payed back.

 

 

 

I agree with that, it shows that the people giving the loan, (mostly China) would lose all that money. Another reason why it's in China's best interest to continue giving loans to the US.

 

 

 

 

 

 

 

Why don't you see the circular reasoning in this though? They are not solving the problem - which is that America is living above it's standards - but only making the problem worse, by continuing to expand their dollar positions. America will care less than us if their dollar collapses, because it will both make their debt expressed in products smaller and because they know that it is very likely that the whole world will end up in a recession too.

 

 

 

 

 

 

 

I see what you mean by circular reasoning, and now you talk about this whole "living standards" issue it's more clear. However you are incorrect in thinking that the US will be less concerned with the dollar collapsing. This will greatly concern the US as a country, not as the individual but as the country.

 

 

 

 

 

 

 

I still argue that the dollar collapsing is a very unlikely event, however a country will suffer if the stability of their currency is dissrupted. If the dollar collapses, what will happen to american firms? They will lose total revenue! This may well affect their ability to hire people. If the dollar collapses, these 2 macroeconomic objectives will be harmed

 

 

 

 

 

 

 

Price stability, because obviously the value of the dollar has derailed

 

 

 

 

 

 

 

Full employment, because firms will be affected in the sence that they will not have the money to hire workers

 

 

 

 

 

 

 

This will harm the US as a whole, from a macroeconomic point of view.

 

 

 

 

 

 

 

Reason enough to stop the process from getting worse and worse. Ofcourse this does not mean "all countries sell your dollar reserves today" with all the disastrous effects that would bring with itself.

 

 

 

 

 

 

 

Indeed they do have to trust the dollar, since withdrawing in a sudden way like that is simply not an option.

I am indeed looking at it both macro-economic as well as individual.

 

 

 

 

 

 

 

What I mean is that the fact that American's standard of living affecting China's standard of living (for the individual) is not affected by America's imports from China and therefore is not affected by the fact that they are lending tremendous sums of money to America. I am however curious why this is the case?

 

 

 

 

 

 

 

I had to read over that part a few times so I hope I get it right. The lending of money of China to America does directly effect the standard of living in China because - if the money was not lend to America - the money could instead be used to increase the standard of living in China.

 

 

 

 

 

 

 

America has a budget deficit so they take loans from other countries. Thanks to these loans, America imports a lot from these same countries which is good for them because they need the imports, however (and correct me if I am wrong but I think this is what you are refering to) this means that the budget deficit gets greater and greater and after a while will burst.

 

 

 

 

 

 

 

Yes that's what I'm saying.

 

 

 

 

 

 

 

This is the reason why people are so concerned with the budget deficit, as you said the money has to be paid by someone however in the short term, China (and other countries) are not worried as they are having an increase in their exports. Now the real problem is how do you avoid from this budget deficit to burst? Obviously loans are not the answer but there are things that can be done about this, and this is why I say that the collapsing of the dollar is an unlikely event. Some of these reasons are a bit off topic but they concern the war in iraq as well as the tax cut issues. Some lesser develloped contries have a huge budget deficit that they literally cannot pay off (the intrest rate of their loans exeeds their GDP) so their currency might burst if they can't get help. The US has the largest economy and for that and other reasons, I believe the US will find a solution to solve the problem internally. But for the moment, as far as the creditors of the US are concerned, they have nothing to worry about in the short term

 

 

 

 

 

 

 

Now the debate just boils down to "do you believe the US has the means to pay off it's debt?"

 

 

 

 

 

 

 

China and other countries are mildly worried, otherwise they wouldn't have made various statements throughout the recent years that they seek to diversify their foreign currency reserves.

 

 

 

 

 

 

 

Also note that I'm not saying that it is completely inevitable that the dollar crashes, although I do want to add that I think it will require some major changes in the current economic policies of America. As I also mentioned in an earlier post, the dollar has already lost significant ground (~33%) in the past years and if nothing changes I expect the near future to continue likewise.

 

 

 

 

 

 

 

And there are other issues other then the budget deficit, trade deficit and future liabilities America has too. America has actually been printing (where printing shouldn't be taking as litteral as physical creation of bills) considerable amounts of $'s throughout the past decade. Interestingly, the Federal Reserve actually discontinued the publishment of the M3 money supply numbers - an act that is widely perceived as suspicious, to say the least. Basically, we can't even check the actual money supply numbers anymore.

 

 

 

 

 

 

 

However you are incorrect in thinking that the US will be less concerned with the dollar collapsing. This will greatly concern the US as a country, not as the individual but as the country.

 

 

 

 

 

 

 

They have to pay the debt back sooner or later anyway. As a country they profit from a crashing dollar as they will 'make money' in the sense that they have to pay back a lot less then they used to owe.

 

 

 

 

 

 

 

I still argue that the dollar collapsing is a very unlikely event, however a country will suffer if the stability of their currency is dissrupted. If the dollar collapses, what will happen to american firms? They will lose total revenue! This may well affect their ability to hire people. If the dollar collapses, these 2 macroeconomic objectives will be harmed

 

 

 

 

 

 

 

If the dollar collapses, the export position of America will evolve for the better. The effects of such a crash could stretch further then anyone can currently oversee though.

 

 

 

 

 

 

 

So ofcourse it is in noone interest that a doomscenario for the dollar actually happens - an important reason why the existance of such a bubble is actually possible too. However using this as an arguement to continue the current situation is obviously not valid. Something has to be done, or it will eventually and inevitably go wrong. And no half-arsed measurements, but dedicated and consistent economic policies should be set in place to ensure this.

 

 

The Euro has apparenty been catching up to the dollar a lot in recent years, and I've wondered what will happen if 1 Euro is ever > 1 Dollar.

 

 

 

 

 

 

 

The Euro is worth more than a dollar right now...

 

 

 

 

 

 

 

And I bet Yugoslavia could have saved a [cabbage] load of money if they didn't need to use so much paper on that money they were printing

 

 

 

 

 

 

 

Oh.

 

 

 

 

 

 

 

I hadn't heard. :lol:

 

 

 

 

 

 

 

Guess nothing bad happened. I'm surely not begging on the streets! :P

 

 

 

 

 

 

 

...Yet.

 

 

 

This...from someone who claims to watch CNN alllllllll day?

 

 

 

 

 

 

 

Haha just kiddin'

I would bother trying to explain the China issue, if Duke wasn't there before I was. His opinion is exactely the same as mine after reading it. I believe he also studies economics and it appears that, based on our knowledge of study, we think alike. So whatever he says, is also my thought about the matter, and probably also that of others that know something about it.

It was fun to read! :D

 

 

 

 

 

 

 

HAHAAHA I lied.

 

 

 

 

 

 

 

Select my message and read!!!

 

 

 

 

 

 

 

That sticks out for me. I'm using chronicles.

I don't know anything about the exact situation there ofcourse, but the scenario seems general enough to summarize it as follows:

 

 

 

 

 

 

 

What you need to understand is that money itself, in essence, is worthless. Its paper value is worth next to nothing and it has no practical use other then the ability to buy and sell other products/services with it. This means that the value of money is completely based on the faith/trust people have in the currency.

 

 

 

 

 

 

 

The faith in currency (and thus "the price" of the currency) comes from the widely acceptance of the currency in transaction, the price stability of the currency, the easy tradability of the currency and (possibly) a governmental "insurance" of the currency (like the old gold standard used to be for the dollar - but there are other sorts of "insurances" too).

 

 

 

 

 

 

 

Printing money directly influences the price stability of a currency. Because money itself is worthless, the creation of new currency does not create any value at all.

 

 

 

 

 

 

 

Now if a certain currency - let's call it X - is valued $1 right now and the governement prints so many new X bills that the total amount of currency X in the economy doubled then the value of one X is halved in terms of $'s. In other words, you could say that printing money is a direct tax on people who own the currency.

 

 

 

 

 

 

 

Enforcing artificially low prices, price controls, imposing restrictions on the currency of people all break down the "easy tradability" of the currency.

 

 

 

 

 

 

 

As a result of the money printing and the removal of the easy tradability, the acceptance of the currency disappears as well. Would you "buy" a currency with your product if you knew that within a few days it would only be worth 10% of what you "paid" for it? No.

 

 

 

 

 

 

 

And then the faith is nearly completely gone and thus the "value" of the currency approaches its intrinsic value (which is next to zero) more and more.

 

 

 

 

 

 

 

Bottom line is - printing money is an artificial way of funding your budget deficit and will ruin an economy if it is overdone.

 

 

 

 

 

 

 

 

 

 

 

OMGGGGGGGGGG!!!!DID YOU GET THIS FROM SOMEWHERE???!!!

 

 

 

 

 

 

 

I WROTE A PAPER ON THIS, IT WAS EXCALY THE SAME THING ALMOST!!!

 

 

 

 

 

 

 

THIS IS THE WEIRDEST THING OF MY LIFE!!!!