The next bubble?

[Tom Kirkham]

http://www.bloomberg.com/apps/news?p...d=a4mPCXeGTl4Y

[Ron61]

I read that and have been watching other reports on China and the Asian economy and the reserves they have.

Ron

[Dan40]

And in this atmosphere bho floats out a $3.8 Trillion budget for next year. And in the absolute best case scenario, fully 35% of that amount we will not rake in. If ALL goes perfectly well for the administration, and they get all the tax increases and receipts they want. All the fees they want, and all the growth of the economy they want. NONE OF WHICH HAS EVER HAPPENED IN HISTORY. Then ONLY 35% of the proposed budget will go to increasing the national debt. Another $1 trillion, 330 billion that we don't have, IF, a big IF all goes perfectly for the bho team. And since no administration has ever realized its best hopes, the increase in the national debt will be much higher.


The time is fast approaching when the US Dollar will be worthless!

In our recent lifetimes we watched the second largest power in the history of the world, the USSR, totally collapse under its debt. It is complete foolishness to think the same WILL not happen to us unless we stop our insane spending.
Will cutting spending HURT many Americans? And I mean deep deep cuts where we can pay down a trillion of debt instead of an increase of that amount. Absolutely it will. Many will suffer, and suffer badly. But not as many or as bad as a total collapse of our nation.

[Tommy]

Someone please help me understand the problem. As I understand it, China is accumulating wealth by selling its products and services around the world. It is using that wealth to buy IOUs from the USA and other nations. It has enough wealth to buy lots of stuff. What is the bubble? What are we concerned will happen to our economy if they continue to build wealth and buy more IOUs?

[Wes Tausend]

Originally Posted by Tommy

Someone please help me understand the problem. As I understand it, China is accumulating wealth by selling its products and services around the world. It is using that wealth to buy IOUs from the USA and other nations. It has enough wealth to buy lots of stuff. What is the bubble? What are we concerned will happen to our economy if they continue to build wealth and buy more IOUs?

Tommy,

I think the world is succumbing to runaway Captalism; ever bit as bad as runaway anything else. We are out of balance. We have never considered this as a problem before in history.

China, or whoever owns China, is poised to win the Monopoly game. They will have all the paper at their end of the table. In the end, that is what they win. It is not like they can trade it back for useful products, when we have just finished sending the last of our factories overseas and are all unemployed like a bankrupt game player. And, yet, were we to restrict the free enterprise of factories to relocate, we would be restricting Capitalism.

As the winner of Monopoly, as literal sole proprieter, I suppose China could decide to rename every property, every land, Boardwalk, or in this case, China. Perhaps start a new game by re-writing new rules. It just can't be good for America, whatever the game and whatever we used to call this land.

Wes

...

[Tommy]

Wes,
With all due respect, I don't think your world view has anything to do with the question I asked. As far back as the Dutch tulip bubble of the early 1600s, an economic bubble is a situation where investment in a particular class of products becomes widely popular and drives prices far above a sustainable level. Early investors typically make a killing and later investors lose their shirts. I just don't see a bubble being described in the article referenced. Does anyone else see one?

[BeanCounter]

Tommy,

China has bought a huge amount of our debt. What happens when they decide not to buy any more. Simple, the US would have to offer higher rates to get someone to buy it. If the do that what happens to the value of the lower rate bonds that China now holds. That value goes down............on a huge amount of money. Boom, a gigantic capital loss for China. There's your bubble.

[Tommy]

Thanks Bernie, that makes sense. But it would seem to put China in the difficult position of having to buy new bonds to protect the value of their older bonds. That argues against this happening.

[VRM]

Originally Posted by Tommy

Thanks Bernie, that makes sense. But it would seem to put China in the difficult position of having to buy new bonds to protect the value of their older bonds. That argues against this happening.

Tommy, that's true, as long as China has the ability to continue to buy our bonds.
As I see it - there are two things that could break that cycle;
1. China has an economic meltdown, or
2. The US cuts back on borrowing.

The first one would also destroy our economy. I've never been keen on China or any other country 'owning' us to the extent that they do.

Steve