Wednesday, October 29, 2014

Investing in Subprime America

Captain Capitalism posts an open letter to China thanking them for giving us money to spend on our "investments."  A good post - go read it!

Do they really think we'll pay it back?  Do they really think we could even if we wanted to?

Have they been paying attention to who we vote for?

News Flash China:  America doesn't pay its debts anymore.  Generations of public schooling, single parenting and entitlement culture have left this country a shell of its former self.  Sure, we have winners here.  They are the ones filling the fewer jobs and paying the welfare benefits of the others. 

The US will only default on its debt if we choose to.  In reality, we will continue to dilute the money supply in order to create inflation.  That inflation will allow us to make payments on our debt with diluted dollars.  Sure, Americans with savings accounts have lost about 6% each year since "Hope and Change," but they don't know that.  China and other holders of our debt should plan to get 100% of the principle back but at a value of ~70% of the original loan. 

If you want full payment, you'll need to take Guam.  Or Hawaii. 

Just PLEASE, don't stop buying our debt!


Robert What? said...

I gotta wonder: the Chinese are not stupid. They must know the score. There is clearly a reason they are OK with the current situation: maybe even pleased. Maybe they think the spectacle of the US self-destructing is worth the price of admission.

Karl said...

I hear your Comrade Robert. I've heard two theories:

1) They need us as much as we need them. If they don't buy our debt, we don't have $$ to buy their exports.

2) They do know the score and have figured out when it'll be time to exit US debt. The signal will be when they buy 10-year bonds rather than the 30-year bonds.

Both have merit, but every economist has his area of expertise and his own bias. I'd assume a mixture of several theories is the ideal barometer.

All I know is I have higher standards than the Chinese. I won't buy a penny of US subprime treasuries.