Re: US debt and long-term savings strategy - what do you think ?

On Mar 27, 3:27 pm, zeg...@xxxxxxxxx wrote:

But what about China etc. having so much USD's they don't know what
to do with them? I mean, we can't borrow for ever, can we ? Right now,
we are basically taking goods manufactured in other countries, and
giving them instead dollars printed in the US. Printing dollars
doesn't add any value to the paper, unless it's backed by real,
tangible goods. So far they've invested these dollars back into US but
as production of goods moves overseas and the purchasing power of an
average American family declines (it's bound to, unless the trend
reverses) US may not be so hot a market to invest in anymore.


When investors from all over the world "invest" money in the US it
means that they give this money to the US financial companies for
whatever they choose to do with them provided they pay a good return.
It does not mean that those money are actually invested in the economy
on the American soil. It could be invested anywhere. And in fact all
big American companies are the global enterprises and so are many the
medium and even the small ones.

This process does not really depends on the state of the US economy
per se. All US economy minus financial sector might disappear one day.
However, until the American investment institutions are trusted and
perform well they stay as their operative field is the whole globe.
They will make very good money until they maintain the high standard
of reliability and stable performance which at this point on average
is the best in the world. Only recently the folk in London and
Frankfurt start stepping them on the toes. The Asian and Latin
American investment is still very risky business.

All that said means that the dollar plays the role of the world
currency and as such is supported not only by the US economy but by
the world economy or at least that part that uses the dollar actively.
As long as the US Federal reserve watches the situation carefully and
does not abuse its privileged position the dollar is fine. It might
change one day if the world decides to switch for say Euro but when
and if that happens nobody is able to say. The same processes of debts
and outsourcing is going in Europe as well and so it is not much
better fundamentally.

It is the US middles class who is in real troubles here. Those who
work for for hire and don't have anything to invests will experience
steady decline of their lifestyle unless they manage to realize it and
bring politicians to power that change the situation.

.

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