Fry chews on America. Om nom nom.

PolitiSUCK
1

Been doing a lot of driving lately. Gives me plenty of time to ponder the mysteries of the universe. I haven’t had a chance to research any numbers yet, but when it do it should lift the fog on my thoughts.

I’ve been chewing on America at a very high level. How we got here, where we are, where we are going from here. It’s scary. It only took us 233 years to get here, and in those 233 years our little experiment in democracy has proven to be the most free and productive way of life since the Roman Empire, maybe ever.

But here’s what I’ve been chewing on:

So maybe we shouldn’t have kept our economy afloat via massive deficit spending. Sure that kept us out of massive economic collapse the likes of which the world has never seen, but at what cost?

So how did we do it? Contrary to Jegular belief, we did not create this money out of thin air. We borrowed it from China, did we not? Isn’t China the largest holder of US Treasury notes?

Why did they do it? We’re a massive consumer nation. They need us to buy their stuff so that their economy can keep thriving. If we don’t buy their shit, they die. So they lent us the money to keep us buying their shit.

So we’re effectively in one massive catch-22: We have a massive trade imbalance with China, and now are way the fuck in debt to China to keep growing our economy that in turn keeps growing our trade deficit. Lather rinse repeat.

Now we’re in one hell of a risky position. Worse than our dependence on foreign oil. Any time China wants to, they start selling or at least stop buying our debt. When that happens our dollar starts losing value very quickly. They own the value of our dollar???

On top of that, our debt forces us into a long term alliance with China. George Washington brilliantly warned against long-term alliances in his farewell address. Our own federal policies have to consider our relations with another country. Someone pointed out in the thread about the green energy bill that China is going to cry foul. We’re fucking ours independence that way. Also possibly slipping towards the end of the Cycle of Democracy.

But here’s the thing. China is simultaneously enslaved to us. We are by far the most productive country the world has ever seen, no? So they need us to keep going to keep buying their shit to keep them going. Do they own us or do we own them?

And so where do we go from here? Gotta get out of debt to China so that we can kiss that long term alliance goodbye.

So similar to the US and Russian military policies during the cold war, our economy and the Chinese economy are assured by mutual desctruction. But what does this mean for us in the long run? Doesn’t an alliance like this fly in the face of the principles that got us here?

I dunno, it’s not simple. There is no black and white. But a system like ours seems to mandate existence on the brink of destruction.

2

jegular…i see jaut you did there.

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Stop counting the money, your not supposed to know that it would take our entire GDP for 10 years to dig out of our debt.

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Why does it work for you? Our GDP is north of 14 trillion. Are you saying we are over $140 trillion in debt?

5

Shit, I had some other sort of revelation somewhere around western Ohio too. I seem to have lost it. It was good though, something about a high-level 100 years from now kind of reason for some of our public policy. Damn it.

6

long lasting alliances can hazz negative affects but not having strong alliances is not any better. in the 18th century independence an self reliance was the answer but in today’s world and mixture of different gov’ts/economies, having a strong alliance with a few other large countries is what can fuel the worlds economy not just ours.

7

Oh fuck. It was 9/11. We HAD to go to war with someone. Iraq wasn’t a mistake. Terrorists only goal is to cause fear. Giving the masses a common enemy to rally around beat the fear that Al Qaeda had put in us. Doesn’t anyone else remember how off-the-charts patriotism was around 2003? I don’t know if Bush was quite thinking at that level, but a war that we won easily laid to waste the fear that had been instilled in us by the 9/11 attacks.

We literally beat the 9/11 attacks by slapping around an unrelated country. We took back our courage and identity that had been taken from us by Al Qaeda by beating the shit out of Saddam Hussein’s Iraq.

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Answer: A cold war with China would equal a trade embargo with them. If we cut them off and say fuck you to the debt that they own, they would crumble and we would have wiped our debt at a cost of our financial reputation or “our global credit” being completely destroyed. We would take a huge hit as no other countries would load us money (maybe a good thing?) but China will go back to 2nd or 2rd world country. We win.

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Hmm, interesting. Maybe.

If we actually tried to default on our loans what would that do to the rest of the world?

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I’m not sure what you are asking. We already spent the money that China loaned us. The only country that would suffer would be China. At first it might be hard to find that goods that China used to sell to us, but new industry/jobs would be created for American companies to fill in the gap.

Edit: The only country that would suffer would be China, unless they borrowed that money from another country and defaulted their loans.

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Wouldn’t everyone start worrying about their foreign currency holdings if we defaulted on our loans? Would our dollar inflate to nothing?

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Yes thats what I mean by our “global credit” getting destroyed. It would take decades to restore. But if it came down to it, thats what we could do to bring down the Chi coms.

Maybe even paying off our debt to China but still blocking trade with them would bring the same result.

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So we went to war in Iraq to make us feel better?

I would have thought continuing to win in Afghanistan and capturing/killing Bin Laden would have done a far better job at that and be justified at the same time.

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Hmm. This is quite the topic. It needs to be discussed over beers. To give the cliffs version:
To analogize with the current American economy, use China as the biggest banks, and the USA as all of the biggest borrowers/consumers. We own a hell of a lot more than anyone else, but it’s all mortgaged. They have a ton of excess income that they prefer to save. If they stop buying our debt, our economy gets credit crunched. Like consumers and corporations did last fall. We stop buying stuff. From them, from Europe, from the Middle East, from everyone. The EU and Middle East recognize a bad situation, and start buying the hell out of our debt, but China is the bank that’s “too big to fail” and they can’t fully pick up the slack without serious consequences. Our dollar’s value tanks, but it coincides with worldwide deflation and a glut of consumer shit that nobody wants, like the current housing market, until we reach a new equilibrium that sets us both back decades. Then we wouldn’t need to borrow so much, cause the dollar would be worth so little internationally that we could start exporting, big time, like they do now with their devalued currency, until we become the bank in the situation.
On the other side, we could stop borrowing from them and import less shit. Suddenly, forced to pay cash for everything, our balance sheet gets a lot smaller. GDP goes way down, everyone tightens their belts, and interest rates go through the roof, domestically. We get a Great Depression style recession domestically that spreads worldwide. Capacity is cut everywhere, and suddenly we’re right back where we were in the first situation, a ton of excess consumer products available and no one with the money to buy them. The dollar and the yuan are linked together. We stop buying their shit, their currency goes down. They stop buying our debt, ours goes down. Either one of those happen, the other one does too.

The X-factor in this is the militaries. We have the most advanced military. They have the most soldiers. We both have nukes. A military battle for breach of contract works out really ugly.
Is this a neverending cycle between the US and China? No. There are new “bank” nations popping up all over the world in the emerging markets, they’re just not on the scale of China right now. But as they emerge, they all make cheap products, and they all love to invest the money in America because our debt is still the safest. Competition means they’ll be willing to sell their products for cheaper, and pay more for our debt, so the chinese can’t dick us around. They pick up some of the slack. China is the side more easily replaced in the equation than we are. No other nation can borrow as much as we do and still put it to good use. Until someone else can match our efficiency, they can sell their stuff on credit to any nation, but we are still the preferred customer.

But in terms of the whole “our economy runs on credit, and we buy way more than what we can pay for every year” thing, yeah, that’s a problem. We just have to keep credit lines open with a lot of different banks.

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Cliffs:

Essentially the US economy is a Ponzi scheme.

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Hmm. I can buy that.

In a fiat-money economy the money only has value because the government forces its value by only accepting said money for payment of taxes.

In an international fiat-money economy the money only has value because the respective militaries only accept said money for payment of debt.

Then there’s the issue of permanence, or our lack thereof. I think there’s more to it than military. China’s dependence on us is based on our productivity creating value to the extent that we can earn their products. Now I’m getting into the raw bartering-meat-for-tools economic fundamentals.

Why is America “Number 1”? It’s got to come down to fundamental principles. We’ve all got roughly the same rocks and wood to work with to “produce.” Maybe our system of semi-free markets and political freedom allows or encourages us to add value to said rocks and wood at a rate way higher than everyone else?

I guess I’m really just chewing on how’d we go from 3rd world poverty to the most prosperous nation mankind has ever seen, in just over 200 years? How do we sustain?

Yeah this doesn’t require beers. This is a discussion for walnut pipes and silk bathrobes. Where’s ecoshardcore?

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For the first 100 years or so, we were more or less isolated over here, with wide open spaces, tons of natural resources and crops, and a lot of able-bodied labor. Those were our building blocks to building up wealth internationally. Then, suddenly, the industrial revolution hit, and we were the best place to set up industry, with those resources and land available. With this abundance, suddenly everyone wanted to come here, and we got a whole lot more cheap labor. We started taking the lead in education. Those factory grunts were the first ones worldwide to send all of their kids to school. Combine that with our industrial knowledge, and we became the innovators of the world. At the same time, with everyone at work, our people started having a lot of disposable income. Disposal income + innovation = explosive growth. We came up with the best new stuff and everyone had to have it. We had the best and brightest, and quality comes to quality, so the best and brightest from everywhere else came here and perpetuated it. We demanded a premium for our stuff and our labor, and we got it.

Our downfall will start when an American education is no longer seen as the best in the world.

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Slavery, Free markets and natural resources.

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interesting thoughts… I will stay tuned.

For reference:
http://www.usdebtclock.org/

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Fry,

I have logged 36,000 miles road tripping since May 08 when I bought my E30. I have also logged 60,000 miles in my Nissan truck in a year and half when Hybrid was open. I know what you’re going through with the thought. Be careful with that free thought, you don’t want to start questioning things now :P.

No seriously, however I think myself and Blue Eyed Devil have been talking about these kinds of things on here for a while now or at least since before the great recession. It’s not a tinfoil thing, it’s just a plain and simple what’s out there. The prospects are un-nerving to say the least.

<3
Don

PS, Africa is the new China