Quote Originally Posted by Hanna View Post
But then why, according to this theory, does China lend money to he USA? Is it some kind of vicious circle where they have to keep propping it up because the alternative is even worse...? I mean, why else lend to someone who isn't going to pay back? I am sure they have a very good reason for lending that money - they are clearly very shrewd. I've been wondering if the US isn't going to come up with some rhetoric about why their debts to China don't need to be paid... Or what other options do they have?
...I think it's spooky about the US debt though. If the dollar just crashes, it would not just affect the Americans but everyone else.
Think about it, the nations of the world are now running fiat currencies, un-backed by gold or anything else. As a result of the 'financial crisis' the US, EU, China UK etc all had to go into some kind of QE to keep things from unwinding. All currencies are being inflated in a sort of sloppy but coordinated way. Thus parity is not in any real danger. The USD is not dropping out of sight, or crashing. Why did/does China lend to the US? Think back to the industrial expansion of China. China used the demand from US for cheap products to stimulate industrial expansion. This required that they get on the USD bandwagon. Once started, it is hard to get off. China is pushing currency swaps with other nations now, and this will gradually reduce the demand for USD as reserves over time. Not catastrophically, not drastically.

Quote Originally Posted by nulle View Post
Superpower can rapidly become a 3rd world country - that happened to USSR.
USA also are not guaranteed to last forever.

And US are paying interest on their debt all the time - if they stop - no one will lend them any more.
The US is rolling debt over. Not paying it off. It is the t-bill standard. In reality the debt is not being payed, because the central banks that are caught in the loop cannot do anything with the dollars and t-bills they have except recycle them with the US treasury. Central banks that have USD/t-bills cannot buy anything with them. The US has no intention of stopping the rolling over of treasuries. But it is not really paying off the debts. Again this is the 'fault of composition' thing. You can do something with USD if you have it, and buy something. The central banks that have USD cannot buy anything with them, except exchange them for t-bills and they can sell/swap USD for other currencies, and they are doing some of that. But purchase of US assets is forbidden. Only in special, select cases can anyone outside of US buy US assets. Buying consumer goods by individuals is completely different, and allowed.

"Superpower can rapidly become a 3rd world country - that happened to USSR. USA also are not guaranteed to last forever." And how is that going to happen?