Perspectives on the global economic meltdown- (Nov 28 2010)

[Austin]

Ranking of countries for 2013
http://expert.ru/

Code: Select all

Place Country 	Year 	  size of GDP ( million$),  size debt (millions $) 	Debt to GDP (%)
1 	  USA 	2013 	16197956 	               18097004 	                    111.724
2 	  China 	2013 	9038658 	                 1768594 	                      19.567
3 	  Japan 	2013 	5997317 	                 14692467 	             244.984
4 	  Germany 2013 	3373327 	                  2750678                  	81.542
5 	  France 	2013 	2565622 	                   2362399 	               92.079
6 	  UK 	        2013 	2532045 	                   2363284 	               93.335
7 	  Brazil 	2013 	2503869 	                   1531642 	                61.171
8 	  Italy 	2013 	1953823 	                   2497924 	               127.848
9 	  Russia 	2013 	2109022 	                    207844 	                         9.855
10 	   India 	2013 	2117279 	                    1411548 	                 66.668
11 	South Africa 2013 	402152 	                    174192 	                         43.315

[Austin]

Can some one tell me how come Japan with a Debt to GDP ratio of 244 % manages to survive while Economist makes fuss about US GDP to Debt ratio half of Japan at 111 % ?

Why doesnt the world makes the same fuss for Japan where Yen is still rated as reserve currency ?

[TSJones]

^^^^^Because the Japanese are HUGE savers. The government can get by with that kind of debt when everybody and their dog has a hefty savings account. That money has to be stashed some where and the banks are mandated to stash it in Japanese Government bonds. *If* the government wasn't borrowing the money it would seek outlets elsewhere and indeed they already do.....in US government bonds!! The Japanese are big holders of US government debt.

I'm beginning to be concerned here fellers. I think that I am not getting through to some of you that the central banks must put their electroninc blips (money) somewhere and that for Western countries and Asian countries like Japan that is their govenment debt. If you guys would like to discuss things like banking reserve requirments, the discount window, and the function of debt in the economy, I would love to have a discussion on this. Really, money in advanced economies consist of debt. And that is not necessarily a bad thing *if* carefully regulated and kept transparent (free of corruption).

[Christopher Sidor]

^^^
Japanese Debt is held by Japanese. Very little is held by outsiders. Recall after 2008, PRC wanted to shift a small portion of its debt to YEN based assets. The Japanese were ticked off and made sure that PRC understood it. This unfortunately is not the case for US Dollar based assets. We are slowly reaching a point where outsiders buy US assets due to the following reason
1) The dominance of US dollar in international trade
2) The sheer liquidity of Dollar based assets.
Note what is missing in the reason, the size of US economy.

Further Japan has a current account surplus. US does not, it has a current account deficit.

In fact if Japan can take some steps to revive its moribund economy it can easily equal the might of PRC and the natural order of East Asia would be restored.

[Theo_Fidel]

And India with 66% is looking like a saint.

As I have pointed out before the reasons for our inflation problem are multi-faceted.

[TSJones]

^^^
Japanese Debt is held by Japanese. Very little is held by outsiders. Recall after 2008, PRC wanted to shift a small portion of its debt to YEN based assets. The Japanese were ticked off and made sure that PRC understood it. This unfortunately is not the case for US Dollar based assets. We are slowly reaching a point where outsiders buy US assets due to the following reason
1) The dominance of US dollar in international trade
2) The sheer liquidity of Dollar based assets.
Note what is missing in the reason, the size of US economy.

Further Japan has a current account surplus. US does not, it has a current account deficit.

In fact if Japan can take some steps to revive its moribund economy it can easily equal the might of PRC and the natural order of East Asia would be restored.

If the Japanese want to restore their moribound economy then they should promote internal consumption and not be so export driven. Let's face it, their culture doesn't like to buy imported items so a lot of things are very expensive in Japan, particularly food items as an example. Unfortunately that is like asking a tiger to change its stripes. Probably not gonna happen. A Black Swan event won't change it either. On the other hand a Black Swan event could potentially make America turn into a nation of savers.

[Austin]

Thanks for the replies.

The point is Debt is Debt how does it matter if you pay to outsiders or pay to your own people , You still have to pay interest to your debtors and then the debt itself. The difference is in case of external debtors there will be foreclosures.

Perhaps the Japanese print more money and get away paying their own people but doesnt this culture would encourage massive inflation ?

I read since 2008 crisis US has over printed $2-3 trillion so excess of money floating in the system keeping interest rates down is that true ? What is the drawback of such over printing ?

[svinayak]

I read since 2008 crisis US has over printed $2-3 trillion so excess of money floating in the system keeping interest rates down is that true ? What is the drawback of such over printing ?

Dollar is doing double duty. It is the currency for the large US economy. It is also the currency for the international trade and lquidity for global trade.

Now the dollar printing is being done for global trade as opposed to keeping the credit market working inside US. US fed can do this without much damage since they have kept the inflation low due to other dominance in the global system. This includes cheap oil imports, large oil market share, large inbound trade from low cost manufacturing countries and US treasury being bought by select large countries. FDI in US as reduced but they are selling US bonds as a substitute for the real money to come inside.

But this is making small countries to get squeezed and their currency becoming worthless. This is one gigantic global system which has never been tried before.

Other countries in this trading regime are in a gigantic trap which they can never come out.

[RamaY]

Ranking of countries for 2013
http://expert.ru/

Code: Select all

Place Country 	Year 	  size of GDP ( million$),  size debt (millions $) 	Debt to GDP (%)
1 	  USA 	2013 	16197956 	               18097004 	                    111.724
2 	  China 	2013 	9038658 	                 1768594 	                      19.567
3 	  Japan 	2013 	5997317 	                 14692467 	             244.984
4 	  Germany 2013 	3373327 	                  2750678                  	81.542
5 	  France 	2013 	2565622 	                   2362399 	               92.079
6 	  UK 	        2013 	2532045 	                   2363284 	               93.335
7 	  Brazil 	2013 	2503869 	                   1531642 	                61.171
8 	  Italy 	2013 	1953823 	                   2497924 	               127.848
9 	  Russia 	2013 	2109022 	                    207844 	                         9.855
10 	   India 	2013 	2117279 	                    1411548 	                 66.668
11 	South Africa 2013 	402152 	                    174192 	                         43.315

What is italy doing in this list? Did they include Indian numbers under Italy too?

[Austin]

Italy debt is 130 % of its GDP

Another view of US and Global Debt

Billionaire Paul Singer: The U.S. Has A Big Debt Problem And The Fed Is Making It Worse

[TSJones]

Thanks for the replies.

The point is Debt is Debt how does it matter if you pay to outsiders or pay to your own people , You still have to pay interest to your debtors and then the debt itself. The difference is in case of external debtors there will be foreclosures.

Perhaps the Japanese print more money and get away paying their own people but doesnt this culture would encourage massive inflation ?

I read since 2008 crisis US has over printed $2-3 trillion so excess of money floating in the system keeping interest rates down is that true ? What is the drawback of such over printing ?

There is no demand in Japan right now, thus they are not worried about inflation at the present time.

The drawback of "over printing" is that if the central bank is not nimble enough to quickly destroy the "over printing" then inflation will take over.

[Prem]

China’s forex reserves reach $3.4tn
http://www.ft.com/intl/cms/s/0/d0fdafbe ... z2TIwwEJpT

In January, the Chinese central bank vice-governor said China’s stabilising foreign exchange reserves showed that the economy was increasingly well balanced. But three months after Yi Gang’s comments, that balance is at risk of coming undone.
China’s mountain of reserves reached $3.44tn – roughly the size of the German economy – in the first quarter, in an indication that the economy is once again facing heavy and unwanted capital inflows. The $128bn jump in the first quarter was the biggest quarterly increase since the second quarter of 2011.
The money washing into China has already made its impact felt by fuelling explosive credit growth in the first quarter. Total new financing in the economy increased 58 per cent to Rmb6.2tn ($1tn) compared with the first three months of 2012, according to government data released on Thursday.The surge in credit gets to the crux of why Fitch this week cut China’s sovereign credit rating, in the first such move by a major international agency since 1999: it is worried that local governments and companies have racked up too much deb
The best measure of this is the ratio of China’s overall credit to gross domestic product. Fitch reckons it reached 198 per cent of GDP at the end of last year, up from 125 per cent at the end of 2008.Fitch also raised concern about the rise in shadow banking, which continued apace in the first quarter, according to the government. The increase in outstanding bank loans was moderate at 16 per cent year on year, but credit outside the formal banking system, including trust loans and corporate bonds, more than doubled.“The rise in foreign exchange reserves is a very clear sign that capital inflows are back,” said Shen Jianguang, an economist with Mizuho Securities. “We will see more and more worries about this in the coming months because of the massive money printing in the US and Japan.”\Large bond-buying programmes by the US Federal Reserve and the Bank of Japan are expanding the money supplies in both countries, generating cash that in part could wind up in emerging markets such as China. The People’s Bank of China has stepped up liquidity withdrawals over the past two months to blunt the inflationary effect of the inflows.
Beijing has strict capital controls to prevent unwanted speculative inflows. But major discrepancies in Chinese export data published on Wednesday pointed to one of the ways in which investors have been sneaking money past the regulators.
Chinese exports to the world rose 10 per cent but those to Hong Kong rose 93 per cent in March, which analysts said was an indication of how companies have been over-billing in order to bring more money into China.Lu Ting, an economist with Bank of America Merrill Lynch, said the strong credit figures might add to fears about inflation, government debt and shadow banking. Mr Lu said Chinese monetary policy makers are “in a tough position to balance short-term growth stability, market worries, and long-term economic health”.
China’s economic growth bottomed out at 7.4 per cent year on year in the third quarter of 2012. It rebounded to 7.9 per cent in the final three months of last year and is expected to have narrowly topped that pace in the first quarter this year. The latest growth data will be published on Monday.The government has already started to take some actions to better control shadow banking. The banking regulator unveiled rules at the end of March that will force off-balance sheet funds into lower-risk investments, a move that will reduce yields and so potentially slow the growth of shadow financing. But it will be another month before the impact of these rules can be gauged.

[Austin]

Thats a lot of money for one nation to have ..... HK too maintains a huge reserves but that does not get counted in Chinese forex.

The CPC has been spending its reserves to buy out assets abroad.

[abhishek_sharma]

How the Case for Austerity Has Crumbled: Paul Krugman

[Singha]

8 Italy 2013 1953823
9 Russia 2013 2109022
10 India 2013 2117279

if these details be true, shouldnt india be #8, russia #9 and italy #10 in above list?

brazil seems to be going great guns and has caught up with UK and France. this for a country of only 200 million people. another australiaish mining superpower + lots of farmland in amazonia after burning the forest.

[Austin]

You are right depending on what these figures mean between 2012-2013 the nominal GDP of Italy is any where between 1.9-2.1 trillion , so roughly they are on par with India and Russia.

Ofcourse the debt at 130 % of GDP means these figures are pretty much notional.

WRT to debt % GDP Russia is very comfortable at ~ 10 % followed by China ~ 20 % , Brazil debt is at ~ 61 % of GDP and India at 66 % , our debt is highest among BRICS.

I think India debt should be cause for concern but the immediate cause is the CAD and Budget Deficit , considering Rupee is not a reserve currency we cant afford to have such figures.

[Austin]

Can some one tell me why is Euro as a currency is still stronger then USD even though Europe is in far deeper shit then US is today ?

Is it due to the fact that US wants to deliberately peg its $ lower then Euro for some financial/economic benefits ?

[Austin]

Snail speed: France’s economy slips into recession

[TSJones]

Can some one tell me why is Euro as a currency is still stronger then USD even though Europe is in far deeper shit then US is today ?

Is it due to the fact that US wants to deliberately peg its $ lower then Euro for some financial/economic benefits ?

a. Europe is in the throes of austerity. Austerity as defined by the Austrian school promotes a sound currency.

b. When first released the Euro was pegged at 1.25 dollars by the euro central bank. Current monetary practice by the euro central bank keeps it at that level or higher.

c. I am no expert but I have read that the euro central bank finally started pumping out the euros. But, unfortunately, there is no demand. I think they waited too long. You gots to be quick on your feet and dance at the slightest provocation.
Probably waiting on America to pull everybody out on the dance floor.

[prahaar]

EUR vs. USD Rate History
EUR/USD exchange rate history starts when the Euro was first issued in January 1999. It opened at 1.1795, although the rate then fell considerably in value. By the time the new currency began circulating within much of Europe in 2002, the pair was only 0.8907, after having fallen as low as 0.8225 in October of 2000.

http://www.eurusd.co/history.html

[TSJones]

EUR vs. USD Rate History
EUR/USD exchange rate history starts when the Euro was first issued in January 1999. It opened at 1.1795, although the rate then fell considerably in value. By the time the new currency began circulating within much of Europe in 2002, the pair was only 0.8907, after having fallen as low as 0.8225 in October of 2000.

http://www.eurusd.co/history.html

The euro wasn't widely circulated until 2002. It then rose to about 1.40 in 2007.

[prahaar]

EUR vs. USD Rate History
EUR/USD exchange rate history starts when the Euro was first issued in January 1999. It opened at 1.1795, although the rate then fell considerably in value. By the time the new currency began circulating within much of Europe in 2002, the pair was only 0.8907, after having fallen as low as 0.8225 in October of 2000.

http://www.eurusd.co/history.html

The euro wasn't widely circulated until 2002. It then rose to about 1.40 in 2007.

In Jan 2002 1 Euro = 0.89 USD. Please show me the source about Euro was pegged at 1.25 USD, my search does not show that. Euro started as a weaker currency but gained strength because of weakness of dollar.

[TSJones]

Here is where I did a quick check.

http://answers.yahoo.com/question/index ... 107AAbZ7dV

[TSJones]

Can Germanic austerity survive?

http://finance.yahoo.com/blogs/breakout ... .html?vp=1

[Prem]

http://247wallst.com/2013/05/16/what-is ... e-results/
What Is Important: Japan GDP Up 3.5%, J.P. Morgan Hides Proxy Vote Results

The Japanese economic miracle, which died more than two decades ago, may be in the early stages of resurrection. First-quarter gross domestic product (GDP) rose 3.5%, a number that was not matched in the same period by any of the EU economies or the United States. Japan’s new central bank bond-buying plan and the government’s stimulus may allow the recovery trend to rush into the current quarter and beyond. Bloomberg said of Japan’s GDP jump:
Private consumption, making up 60 percent of GDP, contributed 2.3 percentage points to the jump. Nominal GDP, which is unadjusted for changes in prices, rose 1.5 percent, also the most in a year.Today’s report shows while consumers — aided by a stock-market surge — are responding to the reflation campaign mounted by Prime Minister Shinzo Abe and Bank of Japan chief Haruhiko Kuroda, companies remain cautious. That may change as the yen’s 20 percent slide against the dollar in the past six months spurs profits and Abe’s administration embarks on reducing regulations.“Japan is clearly back from stagnation last year,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “The key from here is whether Abe can unveil a strong growth strategy. If he succeeds, that will boost business investment to support growth.”

.

[Christopher Sidor]

World from Berlin: 'Austerity Is Making European Economy Sicker' --- Der Spiegel

I am bearer of good news. Finally the germans are realizing that perhaps they have taken austerity too far.

"We Europeans are gazing longingly across the Big Pond and wondering why we have not been granted (the same positive economic news as the US). And the answer suggests itself: Because we may very well have gone too far with austerity."
....
....
But the fact that it[i.e. the recession] is lasting so horrifically long leads one to suspect that Europe's path is making the Continent sicker rather than healthier."

If this thought takes hold then we can see an easing of austerity. Probably at the end of the elections in Germany. Once that happens the biggest economic area in the world, bigger than US, will be on a growth path.
With US already growing, slowly but surely that can only mean good news. There is looking like a glimmer of light at the end of the tunnel.

Sieg Heil.

[RoyG]

Eh, you spend too much and then discover it's unsustainable. Then when the bank comes to take the car, boat, and house away you crash. You can try obtaining loans here and there to buy more time but in the end you've built up an unsustainable enterprise of spending and a crash and lifestyle restructuring are inevitable. The earlier you bite the bullet, the better.

[TSJones]

There is not a German alive that doesn't worship at the feet of Ludwig Erhard the architect of the german economic miracle of the 50's and 60'. Erhard was firm believer in restricting curency growth and tromping any possibiblity of inflation. No more price controls, no more rationing. let the currency do the work and the citizens shall follow. It was wonderful. No more Nazi type programs where everything was controlled. The Austrian school was triumphant in free market reforms. A miracle.

So why isn't it working again? Maybe because the US army is no longer pouring a gazillion dollars into their economy? Could be. Could it be their economy is now a developed economy and no longer responds like an economy that needs to be developed? Could it be they have concentrated too much on exporting and not enough on internal consumption? (Unlike the southern Euro states that have done the reverse.) There are no easy answers.

[Theo_Fidel]

TSJ,

Germany recovered because it had the highest skilled workforce in the world at the time. Even America was not quite up to that level. As always it comes down to human ability.

[Neshant]

Bernanke is rigging the stock market hoping that will convince people a recovery has taken place.

This means a lot of malinvestments are taking place as speculators jump into the stock market hoping to ride this gravy train up - some with huge leverage.

This money isn't free - its been stolen from savers, pensioners, wage earners and "entitlements" of the younger & middle age generation. Eventually "entitlements" like SS..etc. will be cut and taxes will be raised to pay for it.

Bernanke wants to look good on his way out of the Federal Reserve although his legacy has been disasterous. In my opinon, he will go down in history as having destroyed the most amount of wealth by any person in living memory - an effect that will be only be felt sometime after he has departed the Federal Reserve.

We'll know soon enough what market rigging, money printing, interest rate surpressing..etc. leads to. He's already trying to distance himself from cuts to govt spending that are coming to pay for the money he's been giving speculators & cronies of the federal reserve namely the large private banks.

[akashganga]

Bernanke is rigging the stock market hoping that will convince people a recovery has taken place.

This means a lot of malinvestments are taking place as speculators jump into the stock market hoping to ride this gravy train up - some with huge leverage.

This money isn't free - its been stolen from savers, pensioners, wage earners and "entitlements" of the younger & middle age generation. Eventually "entitlements" like SS..etc. will be cut and taxes will be raised to pay for it.

Bernanke wants to look good on his way out of the Federal Reserve although his legacy has been disasterous. In my opinon, he will go down in history as having destroyed the most amount of wealth by any person in living memory - an effect that will be only be felt sometime after he has departed the Federal Reserve.

We'll know soon enough what market rigging, money printing, interest rate surpressing..etc. leads to. He's already trying to distance himself from cuts to govt spending that are coming to pay for the money he's been giving speculators & cronies of the federal reserve namely the large private banks.

You are right. We are already seeing impact of Bernaki policies. The real inflation in the US is much higher than what US gov acknowledges. The US has started paying for its tens of trillions of dollars of debt by debasing its currency USD and paying in cheaper dollars. People who saved their honestly earned dollars are finding themselves backstabbed by the fed actions.

[Prem]

China, India to be largest investors among developing nations

http://zeenews.india.com/business/news/ ... 76341.html

Bashington: India and China are expected to be the largest investors among developing countries by 2030, with the two Asian giants accounting for 38 percent of global gross investment, a World Bank report said on Friday."Among the developing countries, China and India are expected to be the largest investors, with the two countries together accounting for 38 per cent of the global gross investment in 2030. All this will change the landscape of the global economy, and GDH analyzes how," said Kaushik Basu, World Bank's Senior Vice President and Chief Economist.According to the latest edition of the World Bank's Global Development Horizons (GDH) report, by 2030 half the global stock of capital, totaling USD 158 trillion, will reside in the developing world, compared to less than one-third today, with countries in East Asia and Latin America accounting for the largest shares of this stock."GDH is one of the finest efforts at peering into the distant future. It does this by marshaling an amazing amount of statistical information," Basu said."We know from the experience of countries as diverse as South Korea, Indonesia, Brazil, Turkey and South Africa the pivotal role investment plays in driving long-term growth," he added. According to the report, in absolute terms saving will continue to be dominated by Asia and the Middle East.
"In the gradual convergence scenario, in 2030, China will save far more than any other developing country - USD 9 trillion in 2010 dollars - with India a distant second with USD 1.7 trillion, surpassing the levels of Japan and the United States in the 2020s," it said.As a result, under the gradual convergence scenario, China will account for 30 percent of global investment in 2030, with Brazil, India and Russia together accounting for another 13 percent.In terms of volumes, investment in the developing world will reach USD 15 trillion, versus USD 10 trillion in high-income economies.China and India will account for almost half of all global manufacturing investment.
The World Bank said Sooth Asia will remain one of the highest saving and highest investing regions until 2030.However, with the scope for rapid economic growth and financial development, results for saving, investment, and capital flows will vary significantly: in a scenario of more rapid economic growth and financial market development, high investment rates will be sustained while saving falls significantly, implying large current account deficits.South Asia is a young region, and by about 2035 is likely to have the highest ratio of working- to non-working-age people of any region in the world.The general shift in investment away from agriculture towards manufacturing and service sectors is likely to be especially pronounced in South Asia, with the region's share of total investment in manufacturing expected to nearly double, and investment in the service sector to increase by more than 8 percentage points, to over two-thirds of total investment, the report said.

[PK Mudiliyar]

Maybe because the US army is no longer pouring a gazillion dollars into their economy?

No the problem is

because the US army is pouring a gazillion dollars into their economy.

A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation. Judged by military might, the US is by far the most powerful nation in the world. Judged by economic standards the US is powerful but slipping. A nation that is weakening on the economic front will play a diminished role in the community of nations. Ross Perot

A nation with no money can not be a global policemen leave alone policing, surviving on borrowed money itself becomes per occupation.

[abhischekcc]

Thanks for the replies.

The point is Debt is Debt how does it matter if you pay to outsiders or pay to your own people , You still have to pay interest to your debtors and then the debt itself. The difference is in case of external debtors there will be foreclosures.

Perhaps the Japanese print more money and get away paying their own people but doesnt this culture would encourage massive inflation ?

I read since 2008 crisis US has over printed $2-3 trillion so excess of money floating in the system keeping interest rates down is that true ? What is the drawback of such over printing ?

Hi Austin,

Most of GOI debt is in INR, not USD. Which means that if GOI ever faces a situation of cash shortage, it can always print more Rs, and send them to the accounts of the GOI-debt holders. Since most of this is held by pension/insurance companies, it means that ultimately we common citizens will have to foot the bill. We will also have to bear any rise in inflation.

But at least the government will not default, and that is what the markets/ fund managers care about. Inflation they can discount, but default scares the pakistan out of them.

[vishvak]

Investigation into what seems to be yet another global price fixing scandal, this time fixing: international oil prices, coming from Europe where several European companies allegedly fixed international oil prices as Europeans have exclusive markets that sell oil, futures trades in oil, etc. link.

What the link does not say is how European companies went about rigging global prices and whether European companies indulged in competitive price rigging over decades for greedy illegitimate money out of exclusive trading rights to market oil.

[vishvak]

World from Berlin: 'Austerity Is Making European Economy Sicker' --- Der Spiegel
...

What is austirity in Europe other than temporary accounting till Germans are made to buy sovereign debt bonds again?

The Europeans were hiding sovereign debts even when Germans were buying debt. What can make othwise when Germany starts buying debt again? Europeans will do austerity circus till then and go back to European lifestyle under sovereign debt. No efforts are made even now to change anything at all even after global financial crisis and no efforts are made to identify roots of financial problems or debt hiding behaviour.

[Suraj]

Most of Indian debt is not just in INR, but held by domestic entities. Gilt funds, for example are packaged government bond issuances, spread over short, medium and long term bonds. Further, RBI rules regarding the statutory liquidity ratio require banks to hold a certain fraction of their deposit base in the form of government bonds before credit lending activity. The current SLR is 23%, as far as I recall, which means a full 25% of the formal banking deposit base is held in government securities.

In Japan too, there's a tradition of most debt being locally held, particularly through the behemoth Japan Post savings system, which held ~$5 trillion in savings, about a fifth of which was government debt.

Locally owned local currency debt is the least riskiest, while externally owned external currency debt is the most dangerous one. The US debt is somewhere in between - local currency , but significant external ownership.

Reg. Chinese forex reserves, I don't see the point of viewing them in terms of their marginal value. Rather, their holdings of US debt ensure that they are guaranteeing that the value of their forex reserves will not be equal to their nominal value. Explained better, they cannot buy stuff worth $3.4 trillion with their $3.4 trillion, while simultaneously expecting the US to pay them back $1.5 trillion they hold in US debt such that they can go buy the equivalent of $1.5 trillion of stuff today. The US has every incentive to erode the value of the dollar to reduce the real value of its debt. The Chinese will erode the value of the dollar if they try to go out and spend a lot of dollars and thus flood the market with dollars. So when some article says "three point four treellliiooon!", my mental image is that of Austin Powers with the pinky to his lip...

[Austin]

Good Point Suraj.

I have also read alternative views on the Debt part which goes like this though its comforting that our Debt of around ~ 70 % is mostly internal but like any debt one has to pay it back with interest and principal , if we simply repay those debt by printing more notes , then eventually hyper inflation will set in hence for Rupees there is limit on the excessive money floating into the system , for reserve currency like $ or Euro that limit is substantially higher. High Debts in some parts also affects credit rating of a nation

For China I agree they cannot convert the entire 3.5 Trillion Dollar into something for consequences well known and neither would US want them to do that , its like a mutually you scratch my back and I yours relationship established between US and China.

They have been using some of those dollar though to buy mineral/mines/natural resources in Africa , funding pipelines for Oil for eg between China and Russia , paying their huge Oil Import bills and for grating credits etc so those money have been put into use

I am not sure if one of the reason for holding huge reserves of USD is because they plan to make Yuan full convertable by year end as the talks are would a higher reserves help them ?

[TSJones]

Most of Indian debt is not just in INR, but held by domestic entities. Gilt funds, for example are packaged government bond issuances, spread over short, medium and long term bonds. Further, RBI rules regarding the statutory liquidity ratio require banks to hold a certain fraction of their deposit base in the form of government bonds before credit lending activity. The current SLR is 23%, as far as I recall, which means a full 25% of the formal banking deposit base is held in government securities.

In Japan too, there's a tradition of most debt being locally held, particularly through the behemoth Japan Post savings system, which held ~$5 trillion in savings, about a fifth of which was government debt.

Locally owned local currency debt is the least riskiest, while externally owned external currency debt is the most dangerous one. The US debt is somewhere in between - local currency , but significant external ownership.

Reg. Chinese forex reserves, I don't see the point of viewing them in terms of their marginal value. Rather, their holdings of US debt ensure that they are guaranteeing that the value of their forex reserves will not be equal to their nominal value. Explained better, they cannot buy stuff worth $3.4 trillion with their $3.4 trillion, while simultaneously expecting the US to pay them back $1.5 trillion they hold in US debt such that they can go buy the equivalent of $1.5 trillion of stuff today. The US has every incentive to erode the value of the dollar to reduce the real value of its debt. The Chinese will erode the value of the dollar if they try to go out and spend a lot of dollars and thus flood the market with dollars. So when some article says "three point four treellliiooon!", my mental image is that of Austin Powers with the pinky to his lip...

I would point out that nobody forced the Chinese to buy US debt. In fact, about 2 years ago the Chinese divested almost a trillion in US debt and diversified into othe countries debt. After that, they came back for more US debt! Back up the truck boys and load 'er up! Can't let that renminbi appreciate to much. Gotta keep her cheap.

Then we get the scenario that somwehow if the US really makes the Chinese angry they will do something with our debt. Doh! Call out the deputy sheriff with a reposession order I guess.

Seriously, if the Chinese do not want US debt, the proper way to get out of it is slowly sell it off on teh open market so as not to depress the value. It can be done. They already did almost a trillion of it. And *if* the projections are correct, the US debt/GDP ratio is going to improve anyway. Let teh Chinese pickup somebody elses debt. Like Greece. Which will probably eventually work out OK too, Shoot, if Fannie Mae and Freddie Mac can come back alive and actually *make money*, Greece can too. Sovreign debt which deals in a major currency (Euro) can be amazingly resilient.

[Austin]

Ceiling suspended: US takes on $300bn in new debt after hitting $16.7 trillion