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(New Europe)   Commission approves a €3.9 billion recapitalisation of Italy's third largest bank. Because this time it will surely fix Europe's banking system, we swear. Why are you laughing?   ( divider line
    More: Spiffy, Commission, Europe, Italy, bankers, Commission approves, capital ratios, eu states  
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663 clicks; posted to Main » on 18 Dec 2012 at 10:22 AM (4 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»

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2012-12-18 11:49:53 AM  
1 vote:

chumboobler: The US already has amassed a debt that is unmanageable. Eventually confidence in the US dollar will be lost. Even now, the Canadian dollar regularly has greater value than the US dollar. That is not because Canada's economy is getting stronger, it is because the US economy is getting weaker faster than Canada.

Um, OK, given you've very clearly shown you have no idea how this works, time to stop typing and pay attention.

Value of debt and value of currency are two different things. The confidence others have in the US debt is reflected on how much the US pays to sell it -- in other words, the interest rate. Which, last I checked, 10-year bonds sell for about 1.7%. That means when push comes to shove, investors really don't believe in any sort of hyperinflation risk or they'd demand higher rates now. Yes I'm aware of allegations that they're "gaming" the system, but it's their system so I'm not sure what the point is. The Fed can buy all the bonds it wants, but in the end other people buy the debt and they wouldn't do so at artificially high prices. The Chicken Littles also scream about how China owns all our debt. Setting aside the fact that they don't, frankly foreign debt is a good sign that we have strong credit. Actually they do it to manipulate exchange rates, but consider that they're buying paper in exchange for real goods. Other nations would gladly be so lucky. If they really thought it'd be throwing good money after bad they'd look elsewhere. Instead, investors domestic and abroad have ridiculously high confidence in America's credit. They say they don't because America is a culture that rewards whiners. The reason why dollars are cheap is because that's the Fed's only real means of stimulus as long as Americans keep electing politicians who campaign on obstructionism. We can't get a jobs program going, so we devalue the dollar to get people to spend them. It kinda works in a passive sort of way, like building a giant sail to move your car because you're out of gas and refuse to refuel out of some ideological principle, but that's all the political power they have.
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