Very Basic economics question.
- Thread starter tj07
- Start date
Selling the USD pushes down the value of the USD. And which means that USD's purchasing power is decreased against other currencies. Can you see inflation? Which may cause rates to be raised.
Selling of treasury bonds => Less liquidity in the treasury market. Which causes bond prices to drop, which is inversely proportional to the rate, and the rate goes up.
Uncle Sam is going to spend no matter what, so, it, with the power to tax the general population as its "credit score", will continue to borrow, at ever higher rate. And rate rises without the Fed saying anything. This process may push other private borrowers (private companies) out of the bond market, because the rates are "too high". and these private borrowers will spend less on upgrading capital equipments, less on hiring new people, and the whole economy goes into the s***t hole
The only way to reverse that is to lower interest rate to entice spending & borrowing... etc. or increase government spending. Depends on the school of economic you side with
The fed almost ran out of that power during the last cycle at 1.0% How low can they go?
Selling of treasury bonds => Less liquidity in the treasury market. Which causes bond prices to drop, which is inversely proportional to the rate, and the rate goes up.
Uncle Sam is going to spend no matter what, so, it, with the power to tax the general population as its "credit score", will continue to borrow, at ever higher rate. And rate rises without the Fed saying anything. This process may push other private borrowers (private companies) out of the bond market, because the rates are "too high". and these private borrowers will spend less on upgrading capital equipments, less on hiring new people, and the whole economy goes into the s***t hole
The only way to reverse that is to lower interest rate to entice spending & borrowing... etc. or increase government spending. Depends on the school of economic you side with
The fed almost ran out of that power during the last cycle at 1.0% How low can they go?
Quote from cashmoney69:
Think of it like having low blood pressure...not enough blood to get to all the parts of your body...same with the economy, money is harder to get (loans?) when others are hogging it all.....i hope this is a right/good example.
cm
A very weak example. I could see where you were coming from if we were still using the gold standard, but not with a fiat dollar.
Yes, from administration to administration and this is the point I was eluding to in my earlier comment.
Because the USD is the reserve oil dollar, only one country can legally obtain oil by printing money, everyone else has to earn the money and exchange their currency for dollars.
Adding to this inside track advantage is Washington's attitude, that foreigners do not lend money to the US, but rather they are investing in the US economy.
A suitable spin, but one the very much puts the risk back firmly on the foreigner. (quite unlike argentina)
Or to put it in plain words, US cannot default, but foreigners can make bad decisions based on washington supplied information. Argentina, I might add, claimed that they did everything that the IMF ( washington backed) advised.
For your average American, their life style peaked around 1974. This was a time when they were deepest within their earning/spending cycle.
Fast forward 30+ years and saddam is selling oil in euros, which of course the fed cannot print.
And so the new new game in town is topple saddam, win the hearts and minds of ALL Iraqis and bind the gulf states into one common currency that is dollar bound.
It was a plan dreamt up by a group of very unworldly people and never stood a chance of success, unless you call sucking in Blair a success story.
Mind you, if you set the bar low enough, anyone can clear it.
Now kuwait has announced that it has removed the dollar peg followed by syria and soon to be followed by UAE.
This is most likely a forunner to shifting oil sales into a basket of currencies and dropping the dollar.
So, while all attention is diverted towards china there is big big trouble ahead with the gulf states. This includes iran which could easily be the next fall guy and leaves Venezuela in a very interesting position.
So in response to the OP 'is debt a bad thing for the US'
I guess only time will tell.
You have selected just one leg of the US economy tj07 and as I have pointed out it is hard to isolate the effects of this without a detailed awareness of the other interlocking legs.
The US along with various other countries have mortgaged their future generations in order to provide massive profits for the current players.
It is a little bit like bringing all the oil to the surface in one generation without a thought for those who follow.
The current problem is to avoid a perfect storm, whereby several large contributing factors all impact on the economy in the same direction at the same time. This is in no ones best interest.
The rat on a treadmill running towards a piece of cheese that is tantalizingly but hopelessly out of reach has a great deal in common with the unworldly ones currently making the decisions on your behalf.
Basically, the move towards the global economy, so much desired by the banks and large players is bringing pain to all with a great deal more to come.
Everybody will get a share of the pain, whether it is now, tomorrow or later.
On a much brighter note, these changes bring with them mucha oportunidad.