Re: Politics and the military (Re: The rise in military science fiction)

In message <gebHq2M0drxDFwr2@xxxxxxxxxxxxxxxxxx>, Robert Sneddon <nojay@xxxxxxxxxxxxxxxxxx> writes
In message <xNhGP1zQRqxDFw5e@xxxxxxxxxxxxxxxxxxxxxx>, Brett Paul Dunbar <brett@xxxxxxxxxxxxxxxxxx> writes
In message <a4+pzrlhwXxDFwPU@xxxxxxxxxxxxxxxxxx>, Robert Sneddon <nojay@xxxxxxxxxxxxxxxxxx> writes 

about 20-25 billion comes from abroad, mostly from Chinese and
Japanese sources. The Chinese money sources all lead back to the central
banks which are Government controlled.

China is in the process of bringing in a more market based banking system, severely damaging the finances of the existing banks is unlikely to help this. Politically motivated stupidity tends to discourage investors, doesn't necessarily stop the stupidity but it does make it expensive.

Right now China is happy to loan money to the US to fritter away in Middle Eastern nation-building exercises while it pisses the best military machine on the planet into the sand; they've got to have somewhere to store their surpluses and they get great diplomatic leverage from the way the US has to beg for their financial support. Don't make the mistake of deciding that what the US government thinks is important must necessarily be what the Chinese government thinks is important; they might decide to trade their financial stability for something else, like Taiwan and saying it is economically stupid only makes you right.

Governments can and have done economically stupid things, doing this particular stupid thing would involve reversing the entire trend of Chinese economic policy over the last few decades, so is really unlikely. Much like the USA could repudiate all or some of the debt it owes, again something the state has the power to do and very good financial reasons for not doing,


In any event what do you think the Chinese government would be able to
do with the bonds?


Resell them cheaply on the world market causing the US to be unable to
sell any more debt in the short term.

Right.... All that does is slightly depress the price of US bonds on the market affect the interest rates on government bonds, which can make future borrowing slightly more expensive, which is hardly catastrophic.

The problem is that the US government has no financial reserves. It relies on selling bonds every month to keep the military machine fed with ammo, food, fuel etc. That's the thing that tops logistics, when the professional has the machine to move goods to the front line troops expeditiously but there aren't any goods to send. Right now about 40-50% of those bonds go overseas and the local buyers can't take up the slack by themselves in the long run because there aren't the savings to back up the purchases. Three months of no overseas investors means interest rates go up to try and bring them back; the worst case is a panic when T-bills are dumped by other holders moving their investments into other denominations. If America goes into a recession again (the signs are there but their significance is being debated) then that won't help.

The US is nowhere near the kind of debt/GDP ratio that would cast any real doubt on its ability to service its debts (in 1946 the US national debt was over 120% of GDP). so US bonds will remain under all reasonably foreseeable circumstances an ultra-safe investment.

Even if the US decided to reduce borrowing it could still, print money, raise taxes or divert other spending.


The old saw attributed to Napoleon that "An army marches on its stomach" doesn't refer to food as such, it refers to the ability of the leaders to pay for that food as well as all the other supplies it needs.

Napoleon's armies actually fed themselves mainly by foraging, he meant it more or less literally not figuratively, he had to keep his forces moving and relatively scattered due to the lack of sophisticated logistics. Wellington had the logistics not to need much foraging and could keep his forces concentrated in one place much longer, in Spain this proved decisive.


The US government is nowhere near the limits of what a first world country can borrow. The US national debt is about two thirds of GNP, Japan's is five thirds of GNP (that is Japan owns one and two thirds its GNP to various creditors and still has interest rates near zero).

Japan has a population obsessed with saving money; some economists think they save too much and don't spend enough. Ditto for China. Americans just don't save in contrast, living from credit card repayment to credit card repayment or by refinancing their house mortgage. Japan's national borrowing isn't from foreign sources, it's from domestic funds. The Japanese banks and financial institutions are carrying a couple of hundred billion dollars of US debt right now. They have a loyalty to the US that has come in very useful over the decades but if the dollar starts to tank then they will dump their holdings too. It's a positive-feedback cycle, the worst kind.


When the economy is doing well people borrow more and save less, if the US economy were doing badly then people would feel less secure in their jobs and keep more money is safe investments, for example bank accounts and government bonds....


Oh it needs to as long as the borrow-and-spend Republicans are in
charge. A country at war is a much riskier place to loan money to, of
course.

Depends on the war, as national survival is not at stake this one is hardly likely to lead to a default, the US does not have a reputation for bad inflation so the increase to sovereign risk of the war is fairly negligible, so the availability of credit is likely to be largely unaffected.

Passing the debt on to the next three generations of Americans to pay back isn't going to work when inflation is not acceptable any more and you can't make it disappear down the cracks over time. They will want to borrow money themselves in all likelihood, they don't want to be paying back the debts their spendthrift grandparents left them with. But they don't get to vote, at least not yet.

That the consequences of borrowing are unpleasant in the future doesn't actually prevent the US from borrowing now, the debt at the moment isn't that high by historic standards, indeed it was higher than the current level as recently as 1996, it had dropped to 57% by 2001 (by a mixture of small deficits and economic growth).

Year    % Debt to GDP

1940    52.40%
1941    50.50%
1942    54.90%
1943    79.20%
1944    97.60%
1945    117.50%
1946    121.70%
1947    109.60%
1948    98.30%
1949    93.00%
1950    93.90%
1951    79.50%
1952    74.30%
1953    71.20%
1954    71.60%
1955    69.40%
1956    63.80%
1957    60.40%
1958    60.70%
1959    58.40%
1960    56.00%
1961    55.00%
1962    53.30%
1963    51.70%
1964    49.30%
1965    46.90%
1966    43.60%
1967    41.80%
1968    42.50%
1969    38.50%
1970    37.60%
1971    37.70%
1972    36.90%
1973    35.60%
1974    33.60%
1975    34.70%
1976    36.20%
1977    35.80%
1978    35.00%
1979    33.10%
1980    33.30%
1981    32.50%
1982    35.20%
1983    39.90%
1984    40.80%
1985    43.90%
1986    48.20%
1987    50.50%
1988    51.90%
1989    53.10%
1990    55.90%
1991    60.70%
1992    64.40%
1993    66.30%
1994    66.90%
1995    67.20%
1996    67.30%
1997    65.60%
1998    63.50%
1999    61.40%
2000    58.00%
2001    57.40%
2002    59.70%
2003    62.40%
2004    63.70%
2005    65.70%

--
Great Internet Mersenne Prime Search http://www.mersenne.org/prime.htm
Brett Paul Dunbar
To email me, use reply-to address
.

Relevant Pages