Berkeley CSUA MOTD:Entry 35892
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2025/07/08 [General] UID:1000 Activity:popular
7/8     

2005/1/25-26 [Finance/Banking, Finance/Investment] UID:35892 Activity:very high
1/25    Let me ask a stupid question, how will the deficit be paid?  How
        will the huge deficit really impact our lives in the future?
        Where is the money coming from currently? Are we borrowing
        from foreign governments? Are we printing money like crazy?
        How does it work?
        \_ um..  *deficits* dont get paid.  *debt* does.  deficit is the rate
           at which you accumulate debt.  Petty semantics.
        \_ http://news.ft.com/cms/s/bd52ee06-6dad-11d9-ae0d-00000e2511c8.html
           In 2003, the most recent year with full international
           statistics, central banks financed 83 per cent of the
           US current account deficit, with Asian central banks
           accounting for 86 per cent of flows.
        \_ The dollar right now is a lot like .com stocks in 1999 ... As long
           as there is a consensus that the dollar holds true value, it will
           remain more or less propped up.  If enough central banks decide to
           get out of the dollar, it will collapse, taking the world economy
           with it.  The universal desire to not have that happen is colliding
           with our desire to borrow indefinitely.
           \_ Son, that's been the case since we left the gold standard.
                \_ This is true for any floating currency.  However, in the
                   past there were structural reasons for the value of the
                   dollar ... Now it's mainly our military keeping it afloat.
        \_ let me ask another stupid question, from which countries do we
           borrow money from?
                \_ Mostly Japan, Europe, China & Middle East (Saudi Arabia)
                   That's one reason why freepers are funny ... They preach
                   "fuck the rest of the world" yet don't realize how their
                   lifestyles are being subsidies by the entire planet.
                   lifestyles are being subsidized by the entire planet.
                   \_ haha silly liberal you are.  freepers believe that by
                      bombing the rest of the world into oblivion all debts
                      will be gone.
                   \_ I read that most of it is held by Americans, but the
                      largest amount of debt held by foreigners is held by
                      England. Maybe we'll become a colony again.
                      \_ I just checked and most of it is owned by Japan
                         and China. England is third. Japan owns FAR more
                         of it than anyone else. -pp
                   \_ Um, I thought the debt was financed by treasury bonds.
                      That is, people buy the bonds and collect interest--we
                      don't go out and borrow from other countries.
                      \_ Foreign entities also buy those securities.
                         Roughly half of the $7 trillion debt is owned by the
                         Fed and federal trust funds. Of the other half
                         that is privately held, foreigners own about half
                         of that. More disconcerting is that almost all of
                         the recent debt was purchased by foreigners and
                         so the ratio is getting worse.
                      \_ But we buy the products from foreign countries and
                         give them dollars for it.  Since there is a $60
                         billion a month trade deficit and dollars are
                         basically IOUs, how is that not borrowing from
                         foreign countries?
        \_ The day is coming when we will be called and at that
           point this country will be in a world of hurt. If we
           manage to survive this, the result will be spectacular.
           The nature and scope of central gov in this country
           will be severely curtailed for decades and we will
           finally get Jefferson's "wise and frugal gov" that
           would provide a common judiciary and military but
           little else.
        \_ What's the easiest way to diversify one's cash savings denomination?
                \_ Buy gold. Dig hole. Insert gold. Cover up.
                   \_ Buy metal detector.  Buy shovel.  Head over to your house.
                   \_ Buy metal detector.  Buy shovel.  Head over to
                      your house.
                        \_ The "don't tell anyone you've buried gold at spot
                           X" was implied.
                \_ 2nd the motion... check out "GLD" gold ETF
                   this will protect against a deep drop in the dollar..
           \_ http://everbank.com
        \_ Oh, and one possible answer to "how will the deficit be paid"
           might be "the conservative Christians running the country believe
           the Rapture will arrive before that day comes".
        \_ Up until now, we have been able to roll it over each year,
           but soon it will start to become a drag on our economy. If
           the Bush deficits continue at 4-6% of GDP for another 4 years,
           the cost of financing the deficit will put a drag of -1%/yr
           to GDP growth. At some point, we go the way of England.
           Check out The Economist article at /tmp/ausman/dollar
           \_ That was a good article, thx.
2025/07/08 [General] UID:1000 Activity:popular
7/8     

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news.ft.com/cms/s/bd52ee06-6dad-11d9-ae0d-00000e2511c8.html
Email article Dollar at mercy of central banks By Chris Giles, Economics Editor Published: January 24 2005 02:00 | Last updated: January 24 2005 02:00 Graphic During the past few years the US has become dependent, not so muc h on millions of investors around the globe but on a few individuals in a few of the world's central banks. In 2003, the most recent year with full international statistics, central banks financed 83 per cent of the US current account deficit, with Asia n central banks accounting for 86 per cent of flows. Despite a good start to the year, when the private sector was a large net purchaser of dollar assets, cen tral banks came to the rescue again. The People's Bank of China has let it be known that China increased dollar reserves by $207bn (159bn) in 2 004, financing nearly a third of the US current account deficit, estimat ed at $650bn. The US has lapped up cheap finance to fund its unquenchable appetite to spend. Asian gover nments have until now been keen to oblige, in order to keep their curren cies from appreciating. But all investors have their limits and they may start worrying about their degree of exposure. If new official flows to the US were to be curtailed, the dollar would pl unge, creating a huge hole in the accounts of central banks holding doll ars. "The risk exposure for Asian central banks is already great," concluded M atthew Higgins and Thomas Klitgaard of the Federal Reserve Bank of New Y ork in a recent paper. In November, Alan Greenspan, US Federal Reserve chairman, suggested forei gn investors would reach a limit in their desire to finance the US curre nt account deficit and diversify into other currencies or demand higher US interest rates, "elevating the cost of financing" the deficit and "re ndering it increasingly less tenable". Until recently there had been little evidence to back up these fears but this has begun to change. Members of the Organisation of Petroleum Expor ting Countries have cut the proportion of deposits held in dollars from 75 per cent to 615 per cent in the past three years. The Bank of Thailand said this month it was considering reducing the prop ortion of its $50bn reserves held in dollars from 80 per cent to 50 per cent. A detailed survey out today suggests that central banks are increasingly moving official reserves out of the dollar and into the euro. Asian central banks are unlikely to pull the plug on dollar assets altoge ther. But they may be close to ending their willingness to provide cheap financing for an ever increasing US current account deficit.
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