Best Of The Web: Niall Ferguson - American / Chinese Marriage On The Rocks

Nial Ferguson tells the USA debt story quite well (click here), but then gets diverted to talking about Geopolitics. I've been trying to figure this guy out. Is he a mainstream shill? It seems he is not. Well worth giving 20 minutes to.

As I keep wrestling with the "USA doomed by debt" scenario, I see something that doesn't add up.

You hear about the huge USA debt:

• Government debt of 12.5 trillion dollars.
• Private debt of 300+% of GDP which is around 40 trillion dollars.
• Unfunded government liabilities (Medicare and Social Security) around 50 trillion dollars (or is it 70 trillion)?

You get a total of roughly 100 trillion dollars.

Then you hear about China being the USA's biggest holder of debt and it being a humongously, outrageously large 800 billion dollars (or sometimes its 2 trillion dollars). In any case, its something like 2% of the total debt.

So, here's what doesn't add up. Why is China so important if its only got 2% of the debt?

Help me out with this. Is it because the USA is leveraged 50 to 1 and a 2% hit causes the whole thing to collapse (like the equivalent too-big-to-fail banks)?

MontyHigh, www.worldofwallstrreet.us

Comments

[edwardB]

z is for zionist. ZOG is zionist occupied guv. eg Bernanke is a zionist, documented from his youth. Gordon Blair, Sarkozy & his brother. Tiger Woods a zionist tool, same Lady Gaga. Rubin, Summers, Dimon, Gethiefner, Miliband brothers, Mandelson, Cameron, Dodd, Barney, Shumer, Murdoch, Romer, Shapiro, Blankfien, O, QEII, Bibbi, Lula, Bush family, Bair, all those good boys at the helm. Oxbridge is Oxford & Cambridge university training grounds where the MI6 hierarchy is educated. Thought you'd have known this Monty. No 'accidents' goin on here.

[MontyHigh]

Sorry for being dense, but... what is Oxbridge? what is z-shill? what is z-factory? Just trying to learn.

MontyHigh, www.worldofwallstreet.us

[edwardB]

Ferguson z-shill, Oxbridge. looks good, can not trust. Oxbridge z-factory.

[Zerocool]

China is the largest holder of US treasury 800+ Billion which is about 6.4% of GDP. Feds use sale of debt to foreign investors as a means of raising capital(part of this money was used to fund the stimulus package)...Open market operations..can use that money to buy securities from banks and then the money multiplier and reserve ratio kicks in which can make this money circulate several folds and hence makes more money available to public via loans and increase in aggregate demand..
Why is China imp?
- China can stop buying US debt..others foreign investors will follow..or US govt gives more attractive terms
- Even worse China can start dumping US treasury
- Could effect long term interest rates..would impact growth
- Prices of treasury could fall
- China can use hedging to protect their own loss from fall in treasury prices.
I am not sure a view of China as a % of total National Debt is that important...
But as an investor who has shown willingness and appetite for US debt. China is important for stability of treasury prices and China needs US to market its goods.