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Well, yes, Americans pay the interest through their taxes.  The main problem is the budget deficit.  Our interest payments in America are rising at frightening rates, and I've got to believe that this is exactly what the Republicans want, because it will cripple our ability to finance our welfare state.

But remember that, if America collapsed, China (and/or our other lenders) would be left holding useless pieces of paper.  Trade creates "inescapable interdependencies," as von Mises -- whom, for the record, I despise -- rightly, I think, referred to it.  It's the beauty and, at the same time, the horror of capitalism.  A crippled America translates to very bad news in Asia.

At this point in time, America is still, easily, the dominant partner in the relationship.  But, if America does not use that dominance to demand a liberalized yuan, both countries will wind up in one hell of a mess in the future.  (And I, my friend, will be well-insulated in Europe. ;-)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Feb 28th, 2006 at 05:03:54 PM EST
[ Parent ]
These peaces of paper will actually mean nothing without
America's financial and economic prosperity, as they are not anymore backed by gold. I guess this fact leaves carte blanche to financial speculators and bankers to play the role of semi-gods all around the globe ;)))

I'm not ugly,but my beauty is a total creation.Hegel
by Chris on Tue Feb 28th, 2006 at 05:20:18 PM EST
[ Parent ]
Yes, but backing the currency with gold is a bad idea, because it essentially means pegging the currency to something that doesn't react in a reasonable way to the market.  Gold doesn't naturally fall in price when the economy slows.  In fact, it does the opposite, because investors know that the government needs to pump up the money supply and inflate away the recession.  (Gold has traditionally been the ultimate hedge against inflation.)  Speculators played the role of semi-gods -- or, more accurately, semi-Satans -- much more back in the days of the gold standard.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 1st, 2006 at 08:42:44 AM EST
[ Parent ]
With fractional reserve banking, it is the private banks and not the government that decide how much money to create. Sure, the government can set the very short-term interest at which they will lend money to the banks, but that is a very indirect way to control the money supply...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 1st, 2006 at 08:49:23 AM EST
[ Parent ]
It is very indirect.  Agreed.  And the government -- by "government," I mean the elected officials -- has no power over the lending rate.  (Its only power over the money supply is through spending.)  The central bank controls the lending rate, obviously.  The objective of the game should be to involve the central bank and government only to the extent that it is necessary.  It's good to try to find ways for the market to move rates as needed.  The problem with gold is that it doesn't move as the item should move for the given purpose.  Gold could be a shooting upwards in value while the economy plunges into recession.  It's better to let the economics and banking gurus determine the supply, even if it is an elitist model.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 1st, 2006 at 09:11:07 AM EST
[ Parent ]
I don't trust the private banking gurus, because they have a conflict of interest.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 1st, 2006 at 09:13:10 AM EST
[ Parent ]
I think the system is imperfect, obviously, but that it has worked fairly well, especially since the Volcker Era.  What are the other options?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 1st, 2006 at 11:45:51 AM EST
[ Parent ]
I don't know. What do you think of these writings on money? Are they crackpots, or do they have a point?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 1st, 2006 at 11:49:32 AM EST
[ Parent ]
I'm going to reply, after I finish reading some of the articles, at the bottom of the thread, so that we have a bit more room to read.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 1st, 2006 at 12:12:57 PM EST
[ Parent ]
You could also make it a separate diary.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Mar 1st, 2006 at 05:00:30 PM EST
[ Parent ]
Not sure if I can write enough to get an entire diary out of it.  But it's a good idea.  By the way, sorry for the delayed response.  A huge story broke on Katrina and a clear lie from Bush, and I'm getting a great deal of enjoyment out of watching these little bastards get fried, finally, for their incompetence in New Orleans.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Mar 1st, 2006 at 07:48:22 PM EST
[ Parent ]
It's not incompetence, it's worse.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Thu Mar 2nd, 2006 at 05:46:28 AM EST
[ Parent ]
Yes, apparently it is.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Mar 2nd, 2006 at 07:50:06 AM EST
[ Parent ]
There is a theory that when the money supply in Ancient
Rome was reduced by 90% the common people lost their lands and homes.With the demise of plentiful money the people lost their confidence in the government and Rome
plunged into the gloom of the Dark Ages...

I'm not ugly,but my beauty is a total creation.Hegel
by Chris on Wed Mar 1st, 2006 at 03:46:59 PM EST
[ Parent ]

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