Comments on: Parable for the Macroeconomy http://theunbrokenwindow.com/2010/02/10/parable-for-the-macroeconomy/ The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. - F.A. Hayek Wed, 08 Feb 2012 16:43:18 +0000 hourly 1 http://wordpress.org/?v=3.0.3 By: Harry http://theunbrokenwindow.com/2010/02/10/parable-for-the-macroeconomy/comment-page-1/#comment-12705 Harry Thu, 11 Feb 2010 05:03:35 +0000 http://theunbrokenwindow.com/?p=2319#comment-12705 Exactly, Wintercow. Next time you are on the shuttle with Chuck Schumer, I expect you to explain this to him. I hope the event occurs shortly after his next speech about "disgorging profits." While we are on the subject of demagoguery, I'd like your thoughts on a different topic, namely the simmering fear of China holding so many treasury securities, which they recently said they planned to sell. The reason China holds so much debt is that we have paid them dollars voluntarily for goods we think are worth the price. Those dollars are actually federal reserve notes or other sorts of promises to pay in Federal Reserve Notes. What the hell we expect the Chinese to do with these notes? Evidently for whatever reason they have chosen to convert these notes due immediately for other notes, like t-bills or t-bonds, and suddenly it is revealed we are indebted to the Chinese. Big surprise. I bet they also have chosen to exchange many dollars for Australian coal, too. Recently the Chinese have been getting antsy about holding t-bills and bonds, figuring that maybe it is time to cut their losses. Maybe they have been secretly been watching the Gordon Liddy commercials on Fox, and have figured an annual return of .987% might not be a good deal, even if they decide not to convert their dollars to gold. What they do announce is that they will be sellers of dollar promises. This should be good news to investors who are also stuck with dollars, since interest rates should rise, and the Chinese are among the first to run for the door. It also is bad news for our country, a big debtor, which will face rising costs to refinance its debt, which invariably will burden all of us. Running any business financed by debt will be tougher, and whatever might be paid to employees and owners will be less, resulting in less tribute being paid to our government masters, who will want to disgorge more from us. In this arena the Chinese are no more our enemies than the Australians who sell the Chinese coal, or Costa Ricans who sell us golf shirts and bananas. Come to think of it, after you talk to Chuck on the plane, why don't you ask him to lunch to discuss this? I'd be happy to pay even if I could only make it for dessert and coffee. Exactly, Wintercow. Next time you are on the shuttle with Chuck Schumer, I expect you to explain this to him. I hope the event occurs shortly after his next speech about “disgorging profits.”

While we are on the subject of demagoguery, I’d like your thoughts on a different topic, namely the simmering fear of China holding so many treasury securities, which they recently said they planned to sell.

The reason China holds so much debt is that we have paid them dollars voluntarily for goods we think are worth the price. Those dollars are actually federal reserve notes or other sorts of promises to pay in Federal Reserve Notes.

What the hell we expect the Chinese to do with these notes?

Evidently for whatever reason they have chosen to convert these notes due immediately for other notes, like t-bills or t-bonds, and suddenly it is revealed we are indebted to the Chinese. Big surprise.

I bet they also have chosen to exchange many dollars for Australian coal, too.

Recently the Chinese have been getting antsy about holding t-bills and bonds, figuring that maybe it is time to cut their losses. Maybe they have been secretly been watching the Gordon Liddy commercials on Fox, and have figured an annual return of .987% might not be a good deal, even if they decide not to convert their dollars to gold. What they do announce is that they will be sellers of dollar promises.

This should be good news to investors who are also stuck with dollars, since interest rates should rise, and the Chinese are among the first to run for the door.

It also is bad news for our country, a big debtor, which will face rising costs to refinance its debt, which invariably will burden all of us. Running any business financed by debt will be tougher, and whatever might be paid to employees and owners will be less, resulting in less tribute being paid to our government masters, who will want to disgorge more from us.

In this arena the Chinese are no more our enemies than the
Australians who sell the Chinese coal, or Costa Ricans who sell us golf shirts and bananas.

Come to think of it, after you talk to Chuck on the plane, why don’t you ask him to lunch to discuss this? I’d be happy to pay even if I could only make it for dessert and coffee.

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