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Re:The U.S. Yield Curve Has Inverted by smsm42 on Monday December 03, 2018 @07:29PM (#18594666)
> he says the US debt will start becoming an issue soon

Which makes sense, but - I've been hearing this for couple of decades, and it doesn't seem to happen. I am not sure I understand why it doesn't happen and why people seem to care about the mountain of US debt much less than I think they should - but this looks like what is happening for a while. I still think this will become an issue sometime in the future, but I have no idea how one can predict how soon it would be.

> he seems fairly confident in China surpassing the US as the dominant global power in the near future

That depends a lot of what you mean by "dominant" and "near future", I guess. If you pick your criteria well enough, you could both claim China is already dominant (I mean, look at where all the stuff is manufactured! And their population numbers! And their GDP growth!) or that they are hopelessly behind (I mean, look at their GDP per capita - it's on part with Iraq! Nobody thinks Iraq is dominant... Or look at the immigration patterns - are a lot of people from other developed countries dream to go to China, or vice versa? How dominant can be the country where their own population rather live somewhere else?) So you could make either claim without too much effort.

Re:The U.S. Yield Curve Has Inverted by stephen_g on Monday December 03, 2018 @08:10PM (#18594906)
Modern monetary theory is the only one that can adequately explain why it's not a problem in my opinion.

The kind of people who say that the US's debt is totally going to be a problem any year now have generally being saying that for years, as well as saying that about Japan's since the early 90's.

But MMT proposes that a monetarily sovereign currency issuer (like the US, UK, Japan, Australia, New Zealand, etc. but not Euro-using countries, or anybody with a gold standard, fixed exchange rates etc.) actually have the ability to service any debt denominated in their own currencies, and analysis to pretty confidently say that it would not be inflationary to just pay them out (i.e by money creation). The inflation risk was at the time when the spending of the bond money happened, so paying them out with new money is asset neutral - the only difference is it just gives the bond-holder a more liquid asset.

Then there are other useful tools like sectoral balances, etc. that help explain the links between one of the things that really matters (private debt) and how it relates to Government spending and trade surplus/deficit. A few of the twelve or so people who accurately described the great recession a few years before it happened used this method at the core (e.g. Keen, Godley).

It flies pretty hard in the face of conventional economic wisdom, but I haven't yet found an economic theory that holds up so strongly to real world observation, i.e. in explaining why Greece has huge debt problems but not Germany (Eurozone, but trade surplus) or the US (monetarily sovereign), and why Venezuela and Zimbwabe have their problems (debt denominated in foreign currencies, supply shocks, etc.) vs. Japan (monetarily sovereign) while they seem to do similar things, etc.

Re:The U.S. Yield Curve Has Inverted by mikekchar on Monday December 03, 2018 @10:15PM (#18595825)
The thing is that Japan is actually in a deflationary period. You can easily pay debt with increased money supply in that scenario. Similarly, in Japan the debt is owned by the people of Japan and a big question is whether or not that debt ever comes due. There is an ageing population (which means people will want their money back), but there is also no exemption on inheritance tax. Anybody who dies with money in the post office (which lends all its assets to the government) is essentially forgiving the debt for 30% of that money. Japan has also historically had very low taxes (for example very low value added tax) and this is slowly being corrected. It's placing itself in a better position to pay back debt (at the expense of the economy).

Given that, I'm not really sure that Japan is a good example. The US, as well, is in a weird space. China has been quite keen to buy up US debt. This is propping up the US dollar, which I think is an important strategy for Chinese growth. However, I expect the other shoe to drop at some point. Once the Chinese economy is strong enough that they don't want to be the "cheap manufacturing country for the world" (see Japan and South Korea for other examples of this), I suspect they will drop US debt like a hot potato, favouring strong buying power over strong selling power. If the shift their economy and compete head to head with the US in the "value add" sector, I think that debt may cause significant problems.

But this is complicated stuff and I really don't know what I'm talking about :-) It's fun to speculate, though.

Re:The U.S. Yield Curve Has Inverted by AlexCoventry on Monday December 03, 2018 @11:01PM (#18596109)
> Once the Chinese economy is strong enough that they don't want to be the "cheap manufacturing country for the world", I suspect they will drop US debt like a hot potato

It's also a huge bargaining chip. If China dumped a trillion dollars of US financial instruments at firesale prices over the course of a year, that would cause a lot of mayhem.

Re:The U.S. Yield Curve Has Inverted by smsm42 on Tuesday December 04, 2018 @12:50AM (#18596681)
> I suspect they will drop US debt like a hot potato

I mean they suddenly decide that the asset they bought in trillions as safest investment available around is suddenly worthless - and not only try to hide it, but actually loudly proclaim that all their holding are worthless (I imagine so that it would be easier to sell them at the best price?) I don't see China doing something like that. First, they would need to find a reason why US debt has become worse investment than yesterday - and second, even if they find this reason, they won't ever "drop it like hot potato" - that would be a suicide (in Chinese conditions, probably a literal one for somebody that would cause such loss of billions to the state).

> If China dumped a trillion dollars of US financial instruments at firesale prices over the course of a year, that would cause a lot of mayhem.

Why would they? Other than collective insanity, there'd be no reason for such behavior.

Re:The U.S. Yield Curve Has Inverted by brianpgordon on Tuesday December 04, 2018 @10:06AM (#18599997)
> I imagine so that it would be easier to sell them at the best price

What? How would telling the world that US debt is worthless help them sell their holdings of US debt at higher prices?

Re:The U.S. Yield Curve Has Inverted by smsm42 on Tuesday December 04, 2018 @02:17PM (#18602759)
<sarcasm>
Re:The U.S. Yield Curve Has Inverted by AlexCoventry on Tuesday December 04, 2018 @10:00AM (#18599938)
> Why would they?

Economic warfare.

Re:The U.S. Yield Curve Has Inverted by refurb on Tuesday December 04, 2018 @12:04AM (#18596438)
But why would they do that? It makes no sense.

It’s like buying a car from a friend then turning around and selling it for a dollar.

You hurt yourself more than you hurt the other person.

Re:The U.S. Yield Curve Has Inverted by michaelt on Tuesday December 04, 2018 @06:42AM (#18598513)
Same reason you might fire a $65,000 missile at a $500 truck: Because despite the greater harm to yourself, you believe you can take it and they can't.
Re:The U.S. Yield Curve Has Inverted by conanbatt on Tuesday December 04, 2018 @11:11AM (#18600682)
China does not have that level of wealth
Re:The U.S. Yield Curve Has Inverted by hak8or on Tuesday December 04, 2018 @12:08AM (#18596459)
Not really. China holds a very small portion (less than 10%) of USA debt.

https://goo.gl/images/e6Jmrb

Re:The U.S. Yield Curve Has Inverted by pjc50 on Tuesday December 04, 2018 @04:56AM (#18597977)
Exactly this. MMT works fine for self-denominated debt.

The classic element of currency crises and hyperinflation is always that you can't print foreign currency: if your trade+investment balance is bad enough, imported items become more and more scarce relative to local ones. This crucially includes oil.

Re:The U.S. Yield Curve Has Inverted by AlexCoventry on Monday December 03, 2018 @10:55PM (#18596071)
> it would not be inflationary to just pay them out

That depends on what the creditors do with the money. If they keep it in a bank account, the effect on prices is minimal. If they go out and buy a lot of goods and services or financial instruments like stocks, of course that will inflate prices.