Lets see if we can make sense of this. Now let's say China holds 1trillion in 10 year bonds and decides to cash or redeem their whole position. What could possibly happen? The Fed wires a one trillion freshly printed electronic dollars to China and takes back the bonds. So instead of holding an IOU due in ten years it now holds an IUO that is due on demand - albeit it is less less than 10% of US's GDP or in other words all the goods and services output of the US economy for one month.Not much by some measures.
Anyway, now if China decides to convert these dollars immediately to other currencies it actually shoots itself in the foot because by depressing the US dollar they make their exports substantially more expensive to American consumers. Demand for Chinese goods would collapse in the US, that could shut down China's domestic manufacturing causing massive unemployment, and in turn social unrest followed by political change. Somehow it is hard to find a winner in such drama and both sides are thus inter-dependent - strange bedfellows indeed! .
There is a lesson - the best credit terms maybe negotiated by the creditor's biggest debtor - so borrow a lot! But somehow, Ben Franklin and Shakespeare's wisdom also seems to ring true: neither a borrower nor lender be...
PLATINUM WEALTH PARTNERS
July 22,2013
July 22,2013
Or, just tell them to go fly a kite
In the end, this a funny money game where the on-going idea is to keep the process going, regardless of the final outcomes. The outcome is the same as anyone playing musical chairs - when the music stops someone gets left holding the bag. This is obvious as when resources are depleted money in all forms won't buy much.
Dr Peter G Kinesa
July 22 ,2013
