NK taking potshots at SK

[Partha]

Start voiding T-bonds and watch as no foreign investor touches another single T-bond. Then watch as our troop presence in Iraq and Afghanistan leaves overnight and domestic infrastructure investment grinds to a halt. If you wanted to break the country, there are few better ways than to make the US a toxic investment.

Of course, it goes almost without saying that the GOTP is quite willing to break the country to return to their mythical Confederacy/utopian Libertarian state wherein they control all with their piles of hoarded gold.

[Kulaf]

This is why economic interconnections are a much better deterrent to war than any weapon. Both sides have so much to lose it is hard to even contemplate what would happen to the world economy.

[Ddrak]

Exactly, Kulaf, and it's why economic sanctions are often counterproductive in the attempted punishment of rogue states.

Dd

[Embar Angylwrath]

Start voiding T-bonds and watch as no foreign investor touches another single T-bond. Then watch as our troop presence in Iraq and Afghanistan leaves overnight and domestic infrastructure investment grinds to a halt. If you wanted to break the country, there are few better ways than to make the US a toxic investment.

Of course, it goes almost without saying that the GOTP is quite willing to break the country to return to their mythical Confederacy/utopian Libertarian state wherein they control all with their piles of hoarded gold.

I think most foreign investors could draw the distinction between a country that fires on the US, and a counttry that doesn't. Maybe that little nuance escapes you Partha.

Also, the seizure of assets of a hostile foreign country is not a new thing. That's essentially what this would be. The US government should not be expected to pay interest on bonds or reddem them if a hostile foreign country is attacking US interests, and you're nuts if you think the US should. Why should the US help fund a hostile foreign country Partha? Those bonds should be held by the US and frozen from redemption until all reparations have been made by the hostile foreign country. And most investors would see that if they aren't planning on attacking the US, the investments are safe. It's really no different than seizing bank accounts and other assets held by a hostile foreign country. When we do that, we don't see foreigners pulling money out of US banks or relocating businesses.

[Ddrak]

There's a significant difference between seizing bank accounts and refusing to pay half your national foreign debt. You'd see a massive run on bonds and any thought of the dollar being the global reserve currency would disappear in a flash.

Dd

[Embar Angylwrath]

There's a significant difference between seizing bank accounts and refusing to pay half your national foreign debt. You'd see a massive run on bonds and any thought of the dollar being the global reserve currency would disappear in a flash.

Dd

Nope. You miss the larger point.

A nation that attacks the US would be expected to be treated differently from a nation that didn't attackt the US. Why you are blind to that is beyond me. Oz would do the same.

[Ddrak]

China wouldn't attack the US - they'd claim they were a peacekeeping force in NK and that the US was invading. When the US wiped off the bonds, they'd then make the claim the US attacked them both economically and financially and then demand reparations from the US.

So, I'm not "blind" to anything here. I'm just saying you're taking a viewpoint that the US can act with a free hand here and won't suffer global repercussions. Whether you think it reasonable or not, the bottom would absolutely fall out of the bond market and there would be far more damage done to the US economy than the Chinese economy. Remember, China holding those bonds isn't doing a damn thing to their economy right now so losing the money would be crappy on the government books but wouldn't alter their core capacity to generate income. Dumping the bond market on the other hand would cripple the US.

Dd

[Embar Angylwrath]

You keepp claiming that seizing the bonds of a hostile country would destroy the bond market. But other than you just making the claim, I see no reason that it would. The market would see it for what it is, an isolated incident directed at ONE specific bondholder, and not an overall indication of the stability of the market itself.

[Kulaf]

I'm not sure how the claim of "peace keeper" can be made if there was an active declared war. If we are to assume that NK launched any form of attack which would activate our treaty obligations and Congress actually declared war, China would not commit troops to the area unless they really wanted to ratchet up the tension with the US. This would not play out like our previous engageent in Korea.

[Embar Angylwrath]

I agree Kulaf. I think China will stand by and let the regime fall. They'll probably se up a refugee area in the northern part of the country and try to keep all the NK people there. Its espcially interesting that some of the wikileak docs indicate China is frustrated with NK and internally supports reunification under Seoul. It makes sense. There's a lot of untapped commerce there if NK can be pulled out of the dark ages.

[Ddrak]

You keepp claiming that seizing the bonds of a hostile country would destroy the bond market. But other than you just making the claim, I see no reason that it would. The market would see it for what it is, an isolated incident directed at ONE specific bondholder, and not an overall indication of the stability of the market itself.

The market would definitely see it for what it is - the US government reneging on payment of bonds. Bonds are a reflection of confidence that the US government will pay the value of the bond on the due date. If you damage that confidence in ANY way, which this will absolutely do (how could it do anything else?), then you lower the price of the bonds.

Secondly, and even if you decide to ignore the primary effect, by taking the biggest bond trader out of the game you're smashing demand for bonds. Halve your demand overnight and the price will tank.

Thirdly, the US getting involved in another drawn out war with no real end will damage confidence all by itself and hurt the bond market.

No matter which way you look at it, the US is in far more a precarious position than China economically and to suggest that any action will hurt China more is just silly. They have real production instead of a set of interwoven financial loans (and don't get me wrong - Oz is in an even worse position).

Dd

[Embar Angylwrath]

You keepp claiming that seizing the bonds of a hostile country would destroy the bond market. But other than you just making the claim, I see no reason that it would. The market would see it for what it is, an isolated incident directed at ONE specific bondholder, and not an overall indication of the stability of the market itself.

The market would definitely see it for what it is - the US government reneging on payment of bonds. Bonds are a reflection of confidence that the US government will pay the value of the bond on the due date. If you damage that confidence in ANY way, which this will absolutely do (how could it do anything else?), then you lower the price of the bonds.

Secondly, and even if you decide to ignore the primary effect, by taking the biggest bond trader out of the game you're smashing demand for bonds. Halve your demand overnight and the price will tank.

Thirdly, the US getting involved in another drawn out war with no real end will damage confidence all by itself and hurt the bond market.

No matter which way you look at it, the US is in far more a precarious position than China economically and to suggest that any action will hurt China more is just silly. They have real production instead of a set of interwoven financial loans (and don't get me wrong - Oz is in an even worse position).

Dd

In the order you present...

1. Bullshit. Investors are savvy enough to make the connection that as long as they aren't firing live rounds at American assets, the full faith and credit of the US is still top shelf in the world. It's an ignorant statement to suggest investors can't make that differentiation.

2. China slowed its pace of T-bond acquisitions, only to accelerate them recently. And you probably don't know this, but Japan, a much smaller economy than China, holds almost as much Treasury debt as China. There is plenty of demand for US Treasury debt. And while China (the mainland, I'm excluding Hong Kong and Taiwan, for obvious reasons http://www.ustreas.gov/tic/mfh.txt ) is the largest holder of US debt (only comparing nations here, not institutional investors), they only hold 20% of the overall Treasury debt issued to sovereign nations. Japan holds about 20% too, And China only increaed its holdings over last year by about 12%. The US can easily absorb the $110 billion in lost Treasury debt sales on an annualized basis (which as a percentage basis of overall T-debt held by foreign nations is about 2.5%). And thats if China even plans to buy more in 2011, which is an open question. China has often sold off Treasury debt when it has suited them to do so, and reduced their holdings. They don't always increase their holdings of US Treasury debt year over year.

3. You mean like Afghanistan? Iraq? Those drawn out wars? How did that affect the bond market? Not much is the answer. Nations are still lining up to buy US Treasury debt.

Sorry Dd.. you usually have a good and solid logical base on an argument, but you're just swinging wildly here.

[Ddrak]

1. The "full faith and credit of the US" has taken a severe battering over the last decade. If you seriously think cutting off what will be the world's largest economy won't further damage that then you're blind. It won't take much for international investors to decide America really isn't that sound an investment if they start refusing to pay a trillion dollars of debt for whatever reasons. Economics trump wars.

2. "The US can easily absorb the $110 billion in lost Treasury debt sales on an annualized basis". The US sells approximately $600b in debt on an annualized basis and you seriously think losing $110b of that won't make an impact? How would your business go with a 20% drop in revenue?

3. "You mean like Afghanistan? Iraq?" You think a shooting war with China is going to be like Afghanistan or Iraq? Seriously? NK would be like Iraq if China *didn't* get involved.

I don't think I'm swinging wildly at all. I do think the US would suffer far more than China if they blew off all the Chinese debt, especially given that the argument that China was an aggressor seems pretty lame as well. Both sides would have been drawn in by NK.

Dd

[Partha]

Embar believes that refusing to pay 20% of our debt won't affect investors? Funny. I'd like to see his business tell his creditors that he's refusing to pay 20% of his bills and see what his future chances of getting a loan are.

Shorter Embar: "I've been infected by the Tea Party on economic issues! USA! USA!"

[Fallakin Kuvari]

The "full faith and credit of the US" has taken a severe battering over the last decade. If you seriously think cutting off what will be the world's largest economy won't further damage that then you're blind. It won't take much for international investors to decide America really isn't that sound an investment if they start refusing to pay a trillion dollars of debt for whatever reasons. Economics trump wars.

They would then turn, like they have in past wartime situations, to the American people. I'm sure more than enough funding would come from your average citizen to fill the gap, even in turbulent economic times.

[Embar Angylwrath]

1. The "full faith and credit of the US" has taken a severe battering over the last decade. If you seriously think cutting off what will be the world's largest economy won't further damage that then you're blind. It won't take much for international investors to decide America really isn't that sound an investment if they start refusing to pay a trillion dollars of debt for whatever reasons. Economics trump wars.

2. "The US can easily absorb the $110 billion in lost Treasury debt sales on an annualized basis". The US sells approximately $600b in debt on an annualized basis and you seriously think losing $110b of that won't make an impact? How would your business go with a 20% drop in revenue?

3. "You mean like Afghanistan? Iraq?" You think a shooting war with China is going to be like Afghanistan or Iraq? Seriously? NK would be like Iraq if China *didn't* get involved.

I don't think I'm swinging wildly at all. I do think the US would suffer far more than China if they blew off all the Chinese debt, especially given that the argument that China was an aggressor seems pretty lame as well. Both sides would have been drawn in by NK.

Dd

1. If the "full faith and credit" of the US has taken a batering.. why are nations continuing to buy up US Treasury debt? And you're right... economics trumps wars. In fact, economics ignores wars in the long term, and you make my point for me.

2. Yes, it won't make an impact. The US has had years when it didnt sell as much debt as it would have liked, and the sun still rises in the east.

3. You made the distinction, not me. Something about protracted engagement in wars? And to your point, I don't think a shooting war with China would be the same as Iraq or Afghanistan. Which is precisely my point and one you make for me. An engagement between China and the US would be singularly unique... as would the confiscation or restriction of the bonds held by China... and the rest of the worlds investors would make the same distinction as you.. a China/US millitary engagement would have little bearing on how the US interacts with the rest of the non-hostile world.

[Ddrak]

1. The credit of the US has taken a battering - if it hadn't then there wouldn't be doubt on the status of the USD as a global reserve currency even with the troubles the Euro has been having. I also disagree that economics *ignores* wars, just that it trumps them. I think the history of hyperinflation following wars, especially for the losing party, is evidence of that.

2. 20% loss in revenue won't make an impact? Seriously, you're dreaming.

3. I made the distinction in the original statement - "another drawn out war". You ignored it and tried to use Iraq and Afghanistan as examples. Again, you're seriously out of touch to say " a China/US millitary engagement would have little bearing on how the US interacts with the rest of the non-hostile world". Any such engagement would cause massive damage to the rest of the world's attitude to both nations, primarily sending them running for cover. My point is that China is far better positioned economically to deal with the structural damage caused by any sort of trade war and the rest of the world's investors would see that in a second. There's no good outcome for the US in taking on a fight with China.

Dd

[Kulaf]

Every country has taken a beating. Let's not try to pretend otherwise like the rest of the world is somehow immune to what has been going in the last 3 years.

Any kind of protracted war between the US and China would cripple China. We have the ability to project conventional weapon power on China and they have ZERO ability to do the same to the US. Strikes on power plants.....C&C, etc. would knock out their entire power grid. Heck a strike on the three gorges dam would cause immense economic damage. So let's stop dealing in hypothticals of China trying to bully the U.S. out of Korea because they have far more to lose than we do in any conventional exchange. And a nuclear exchange ends life as we know it so let's not even go there.

China will not involve themselves with a conflict with the U.S. for both economic and military repercusions they are simply not prepared to deal with.

[Embar Angylwrath]

As Kulaf said, most of the countries credit has been damaged over the last few years, and the banking systems in some European countires have collapsed altogether. In fact, if not for the intervention of the US banking system and Fed policy, the devastation would have been much worse. http://www.ft.com/cms/s/0/4dd95e42-fd6d ... z16uRjMIhQ

Just today, news is coming out about how THE US plans to FURTHER stabilize the European economy. And when that news hit, guess what happened, the price on T-bonds fell. Why? Because investors now see that due to the intervention of the US, the euro has somewhat stabilized, and they no longer need the safe haven of US debt. The same safe haven they bolted for when the euro started to tank. My point... the US T-bond is still viewed as the safest instrument on the fucking planet. Penalizing a rogue nation by freezing its bonds would do nothing to hurt that reputation.

That said, of course it's a no brainer statement that a war between China and the US, or even hostilities between the two, would be.. how did you put it? Bad. Yes, we all know it would be bad. That's not the issue here. We are discussint the question of the US unilaterally freezing out China's bonds. Let me ask you this, Dd. What's the difference of doing that across the board, and freezing Chinese assets in the US (which presumably are going to be bank and holding accounts that contain T-bonds). It's not like China gets a T-bond and stashes it under a rug. All these bonds are held by trading houses, for the most part. Your argument falls apart here, because financial meltdowns haven't occured because one nation froze the assets of another. So it's logical to assume that if a country can effectively freeze assets in as many places and they can, they will, if they feel the need to do so.

You also made a statment a few posts back that China will just simply find other buyers for its goods if the US stops buying. Really? Do you know of a magical machine that spits out buyers? Lets just say the US puts an embargo on all Chinese imports. What's China going to do with them? THey'll have to dump them on the market at drastically reduced prices (simple supply and demand). Then they have to make up for the lost US revenue somehow. And how do they do that? Chop prices again. If the US stopped buying Chinese goods, it would set them back 50 years and seriously damage their economy.

I agree though, that not buying cheap Chinese goods would hurt the US economy as well, but Im not buying that it will hurt us more than it will hurt them. And it might be good for our economy in the long run, since we'd have to actually manufacture again.

[Fallakin Kuvari]

I agree though, that not buying cheap Chinese goods would hurt the US economy as well, but Im not buying that it will hurt us more than it will hurt them. And it might be good for our economy in the long run, since we'd have to actually manufacture again.

Not necessarily. With the amount of unemployment over here, and if we could get manufacturing mobilized quickly, we could easily replace a lot of the Chinese goods with good ol' American labor-made goods. Granted, keeping the prices on that stuff lower while being manufactured over here is another thing entirely.