At 10/13/12 02:51 AM, Feoric wrote:
At 10/11/12 09:20 AM, TheMason wrote:
They are terrified of unrest, and therefore they are terrified of fluctuations in their domestic economy. Deflating the value of the dollar, considering China pins the value of its currency on ours, causes their economy to experience inflation.And this is a perfect example of China not having leverage over us. Read this over a few times and demonstrate to me how this makes China somehow a threat? ...
In order to be deft at international relations and foreign policy you have to be able to empathize with other ways of thinking and try to think outside of the box of your culture/civilization's box. What you and Camaro makes perfect sense when looked at through the prism of the Western/Euro-American concept of 'self-interest'. However, the CCP does not share this concept of 'self-interest'. One of the things that confounds Western observers and policy makers when it comes to China is just how bizarre it behaves on the international scene. We scratch our heads whether we are in academia, State Dept or DoD. "Why are they doing that...that's not in their self-interest!" However, those of us who think outside the box realize that they place more emphasis in keeping their domestic population happy...over what makes sense (militarily, economically, etc) internationally.
Afterall, we're talking about a country that builds entire cities just to keep people employed...and thus happy...even though there is no one to live in them.
For a good read may I suggest: China: Fragile Superpower by Susan L. Shirk
One of the things that policies like Quantitative Easing does is causes deflationWhat the hell are you taking about? QE doesn't cause deflation. QE is actually a countermeasure to deflation. Sometimes it goes awry like in Japan. We're not Japan.
When I spoke of deflation...I meant of the value of the dollar not the cost of goods. A devalued/deflated currency can lead to inflated costs of goods...kind of a double edged sword.
That 7.5% will be paid back in dollars that are not worth as much as the dollars they invested in our bonds. They are getting shafted, which then inspires bad trade behavior. Beijing understands this principle...it seems the American Left does not.They're getting paid interest. They're going to make billions of dollars by the time the bonds mature. What exactly do you think is occurring right now?
You're correct. Some treasury bonds have fixed rates which means that they earn a fixed percent. Now if the dollar's intrinsic value decreases China and other bond holders are getting hosed because they are receiving money that is worth less then as it was when they purchased the bond. Think of it this way: you're the Emir of an oil rich Persian Gulf country and OPEC has set the price per barrel at $100. But then QE3 causes the value of the dollar to decrease by 10%...so now your $100 only buys $90 worth of stuff. Each barrel of oil still produces the same amount of gas, diesel, lubricant and/or plastics...so your product's value has not gone down. So are you going to trade your products, whose value is unchanged, for the same amount of a devalued currency? No; you're going to raise the price of your product by 10% to $110 to compensate.
And so is everyone else. However, if you've bought a $100 Series EE Bond at 4.6% interest when you go cash it in you're going to get $104.60 (assuming you've only held it for that year)...which will only buy you $94.14 worth of stuff. You're in a worse position than you started! Even though you have 4.6% dollars than you started...it's worth .
Now Series I bonds have a fixed and variable interest rate component. The problem is deflation can wipe out the fixed rate's return.
Also you have T-Notes which are considered safe investments with a fixed interest rate. The problem is since it is safe; the interest rate is not going to be all that great. It is designed to keep up with inflation at that time period. Now if inflation increases, especially b/c of the devaluation of the dollar, when you go and cash these bonds in you will have more than you started. However, now since the dollar buys you less...you are in a worse position than you started.
So yeah...they'll make billions but billions that are worth far less then than they are now. And that effects China's future stability. They get this concept...too bad the American Left does not.