How does the US replace it's exported currency?

[David Christo]

How does the United States and other nations replace the currency they export, or spend to buy imported foreign goods?

I can see if the trade is balanced, you would get it back.

But what if the trade is not balanced?

We have to have money here to trade amongst ourselves don't we?

How is it replaced?

 

[SteamKing]

It's replaced sometimes by foreign countries using their stockpiled cash to buy real estate or make other investments in the US.

When the Japanese were the leading exporter of goods to the US (cars and electronics, primarily) and they had a stockpile of US dollars, they used some of this case to buy commercial real estate (in NYC and LA), some to buy or invest in other companies (that's how Sony came to own Columbia Pictures; it was purchased from Coca-Cola); and a lot of this cash was used by Honda, Toyota, and Nissan to set up car manufacturing plants in the US to help moderate the increase in price of their products in the US due to the strength of the yen against the dollar.

Now that the Chinese have developed a large export market in the US, they are following a similar path that the Japanese did. Because the Chinese have such a large amount of cash on hand, too much to invest in tangible assets like real estate, they instead purchase government bonds with their excess cash.

 

[David Christo]

It's replaced sometimes by foreign countries using their stockpiled cash to buy real estate or make other investments in the US.

When the Japanese were the leading exporter of goods to the US (cars and electronics, primarily) and they had a stockpile of US dollars, they used some of this case to buy commercial real estate (in NYC and LA), some to buy or invest in other companies (that's how Sony came to own Columbia Pictures; it was purchased from Coca-Cola); and a lot of this cash was used by Honda, Toyota, and Nissan to set up car manufacturing plants in the US to help moderate the increase in price of their products in the US due to the strength of the yen against the dollar.

Now that the Chinese have developed a large export market in the US, they are following a similar path that the Japanese did. Because the Chinese have such a large amount of cash on hand, too much to invest in tangible assets like real estate, they instead purchase government bonds with their excess cash.

That's kinda scary isn't it?

I was thinking we could only print more, or borrow it back...so what? now add sell our nation to get our money back?

wow.

 

[David Christo]

What would happen to us if we didn't print anymore USD's, sell our lands, or borrow it back?

How could we function, or repay our debts?

 

[SteamKing]

Learn this lesson if you learn nothing else in life: printing additional currency only devalues what already exists; it does not create additional wealth. Adding more currency to the money supply tends to increase the rate of inflation, raising the monetary cost of goods and services.

Sure, the US could decide to cease to exchange dollars for goods on the international markets. However, international trade would dry up over night. Foreign companies operating in the US could not move their profits offshore easily to re-invest and thus might decide to close their US operations. If the US wished to import any foreign goods, it couldn't use dollars in the transaction and would have to find a substitute method of exchange.

The Soviet Union tried this during its existence. The currency, the ruble, could not be taken out of the country and thus could be spent only in the SU. If the Soviets wished to purchase and import goods from overseas, they had to use gold or their stockpile of so-called 'hard currency', that is dollars, pounds sterling, or other internationally recognized currencies which had been acquired in past transactions.

 

[David Christo]

Learn this lesson if you learn nothing else in life: printing additional currency only devalues what already exists; it does not create additional wealth. Adding more currency to the money supply tends to increase the rate of inflation, raising the monetary cost of goods and services.

Sure, the US could decide to cease to exchange dollars for goods on the international markets. However, international trade would dry up over night. Foreign companies operating in the US could not move their profits offshore easily to re-invest and thus might decide to close their US operations. If the US wished to import any foreign goods, it couldn't use dollars in the transaction and would have to find a substitute method of exchange.

The Soviet Union tried this during its existence. The currency, the ruble, could not be taken out of the country and thus could be spent only in the SU. If the Soviets wished to purchase and import goods from overseas, they had to use gold or their stockpile of so-called 'hard currency', that is dollars, pounds sterling, or other internationally recognized currencies which had been acquired in past transactions.

I understand about the inflation situation. But something has to be done. we cannot keep buying or trading imported goods for our farmland, printing more money, or borrowing it back with interest. Not for much longer anyway.

Am I missing something?

 

[SteamKing]

Nope. Lesson #2 (Stein's Law): What can't go on forever, won't.

This is why the perennial battles over the federal budget are important. The total amount of US Gov't. debt (the so-called $16 trillion figure) is currently sustainable only because interest rates are so low and have remained so for several years. Servicing this debt (that is, paying interest to holders of U.S. bonds) for FY 2012 cost about $360 billion and is expected to grow to $415 billion in FY 2013. As a line item in the budget, debt service is #4, behind what is spent at HHS, DOD, and the SSA. If interest rates start to rise, or if the annual deficit is not reduced, then a lot of discretionary funds will have to be channeled into paying interest rates on this debt to avoid defaulting on outstanding bonds and to be able to sell new bonds.

Right now, the Chinese, who own a very large amount of US bonds, are content to park their money in these financial instruments. But the Chinese also want to modernize their country and become more involved in international trade. To do this means that they need the money they have stockpiled as a result of their export trade, and it means there will be less money available to purchase US debt. If the Chinese stop buying US bonds, then the Treasury will be forced to offer bonds with higher yields to attract other investors, and higher yields mean that the debt service costs increase.

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

 

[David Christo]

Nope. Lesson #2 (Stein's Law): What can't go on forever, won't.

This is why the perennial battles over the federal budget are important. The total amount of US Gov't. debt (the so-called $16 trillion figure) is currently sustainable only because interest rates are so low and have remained so for several years. Servicing this debt (that is, paying interest to holders of U.S. bonds) for FY 2012 cost about $360 billion and is expected to grow to $415 billion in FY 2013. As a line item in the budget, debt service is #4, behind what is spent at HHS, DOD, and the SSA. If interest rates start to rise, or if the annual deficit is not reduced, then a lot of discretionary funds will have to be channeled into paying interest rates on this debt to avoid defaulting on outstanding bonds and to be able to sell new bonds.

Right now, the Chinese, who own a very large amount of US bonds, are content to park their money in these financial instruments. But the Chinese also want to modernize their country and become more involved in international trade. To do this means that they need the money they have stockpiled as a result of their export trade, and it means there will be less money available to purchase US debt. If the Chinese stop buying US bonds, then the Treasury will be forced to offer bonds with higher yields to attract other investors, and higher yields mean that the debt service costs increase.

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

So what are you saying? Is there any hope, or way out?

 

[David Christo]

quantitative easing to increase the amount of currency in the economy, making it worth less so that banks will lend it easier and with lower interest rates.

Now they are buying commercial debts and such with the new currency, because the short term securities they used to buy are at 0% and buying them does no good anymore.

They say QE is one of two pillars holding up our economy.

Is this a cure, or just a fix?

 

[SteamKing]

Unless the current attitudes and priorities of Congress and the Administration about the fiscal responsibility and the budget undergo a complete overhaul, it does not bode well for the future. The present discussion has encompassed only the deficit in the current trade accounts; there are other serious problems with entitlement spending in the federal budget which have not been addressed in any serious fashion by Congress in almost 30 years, and various congresses and administrations have kicked the can down the road to avoid making hard decisions which have major political implications. Eventually, either a solution will be crafted or there will be serious problems sustaining entitlement spending; the current situation cannot continue indefinitely.

Personally, I am not optimistic, and I think the recession of 2008 is only a taste of the economic calamities to come, and not only to the US. Recent events in the EU have shown that Europe also has some serious economic problems which have been addressed only by applying drastic corrective actions which may not be politically sustainable over the long term. In east Asia, there is the possibility of conflict breaking out between China and Japan, as these two export-driven economies compete for markets and resources globally.

 

[snorkack]

Learn this lesson if you learn nothing else in life: printing additional currency only devalues what already exists; it does not create additional wealth. Adding more currency to the money supply tends to increase the rate of inflation, raising the monetary cost of goods and services.

Printing additional currency does add currency to money supply, but it does not mean the money supply increases. Nor does increase of money supply mean inflation.

Every time a dollar is lost or damaged or worn out without being returned for exchange at full value, the owner (domestic or foreign) is making a gift to US government.

 

[SteamKing]

quantitative easing to increase the amount of currency in the economy, making it worth less so that banks will lend it easier and with lower interest rates.

Now they are buying commercial debts and such with the new currency, because the short term securities they used to buy are at 0% and buying them does no good anymore.

They say QE is one of two pillars holding up our economy.

Is this a cure, or just a fix?

IMO, QE is neither a cure nor a fix. It is a politically-driven policy created by the administration to make sure that the financial sector of the economy doesn't feet too much fiscal pain from the extended 'recovery' following the 2008 recession. Now that QE has been in place as an economic policy for an extended period, the longer it remains in operation, the trickier it will be to curtail it or end it entirely. The recent rise in stock prices is driven, in part, by all this additional 'money' sloshing around. If the supply of this 'money' from QE were to dry up suddenly, it might bring on a large correction in the markets as prices settled back to more realistic levels. This correction could ripple out into the economy at large, possibly bringing on another recession.

 

[David Christo]

So in simple terms, We are now trading off our property piece by piece in exchange for additional time to repay our debts?

That does not sound good.

 

[Evo]

David, I suggest that you do some research into this, there seems to be too much that you don't understand.