Global Economy Bursting?

[Randolph Kinney]

China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

http://cnsnews.com/news/article/china-has-divested-97-percent-its-holdin

China's short-term U.S. government securities dropped from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011. China has also started to divest from longer-term U.S. Treasury securities.

 

[Couch Potato]

China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

http://cnsnews.com/news/article/china-has-divested-97-percent-its-holdin

China's short-term U.S. government securities dropped from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011. China has also started to divest from longer-term U.S. Treasury securities.

Sounds like a wise move on their part. If congress does not extend the debt ceiling before the fourth of July, the bond market could get very ugly in July. An August first deal will have similar effects to no deal at all.

 

[Randolph Kinney]

When dollars are not recycled back to the U.S., either to buy our goods or our debt, that puts pressure on the value of the dollar as the U.S. dollar is spent on commodities and buying companies that produce real goods by those who hold them. The exchange rate of the dollar must fall.

Meanwhile, someone has to buy our U.S. Treasury debt as it matures and as new debt comes to market. If foreigners won't buy at prevailing interest rates, that forces interest rates to rise to a level that will attract investors or the FED will buy the debt with electronic dollar creation.

Devaluation of the dollar is just as good as a default on our debt; the bondholder gets repaid in dollars worth less than what he paid for the debt.

 

[Couch Potato]

Basically it is just the difference between pulling the bandaid off slowly, or yanking it off quickly. I've always been one for the slow approach.

 

[Randolph Kinney]

The perverse effect of dollars leaving the U.S. and not returning is that the velocity of money in the U.S. slows down. That means GDP must also slow down.

The GDP slow down is also compounded by the trade deficit (exports minus imports). A trade deficit means more dollars are leaving the U.S. than coming in, to pay for what we bought; over half of imports is oil. As the price of oil goes up (dollar devaluation), the higher the trade deficit.

There is no pulling the bandaid off slowly. The U.S. will reach of point of collapse. The dollar will not be accepted for payment.

As the U.S. economy slows, a new recession will engulf the nation. Debt cannot be serviced with a collapse of tax revenue and explosion of entitlement spending.

 

[Couch Potato]

I must correct your error. GDP is not directly affected by the trade deficit, that was GNP. When it was beneficial or neutral to GNP trade numbers were part of the equation. Back in the 1980s when trade became an adverse factor it was dropped fromt the equation, and the name was changed to GDP. The fact it was dropped from the discussion in no way diminishes the impact of the trade deficit on our economy. It just means government ignores it and hopes it goes away. Your point is certainly valid, just the label used was wrong.

For real economic growth one must take GDP, subtract the trade deficit, and adjust for real inflation; not a pretty sight.

 

[Couch Potato]

There is no pulling the bandaid off slowly. The U.S. will reach of point of collapse. The dollar will not be accepted for payment.

As the U.S. economy slows, a new recession will engulf the nation. Debt cannot be serviced with a collapse of tax revenue and explosion of entitlement spending.

Maybe, but attempting the slow pull is the only hope for low pain levels. Have you looked at what Juan posted? My first thought was, "just another pie in the sky twenty years form now story." Then I took a closer look. They are talking comercial production of diesel fuel next year at a price competitive with the lowest points of the blue line on your graph! It is the kind of technology that would make pumping oil out of the ground obsolete. Sure it still has a long way to go to reach that point, but it is a disruptive force that will begin affecting the world economy next year.

The potential to stem the flow of dollars out of the country to by energy demands fresh look at the future possibilities. It is not a solution for "everything" or even all energy needs, but it does change the landscape.

 

[Randolph Kinney]

The current administration is not interested in developing carbon fuels.

Gasification of coal has been around since WWII. As long as the infrastructure and cost of producing gasoline was cheaper from drilling and refining, there was no need for it.

Today there is no need because it is opposed. We are choosing high fuel prices and high energy prices by our environmentalism. We don't mind buying oil from the Mideast, South America, Mexico and Canada.

It is a known fact that emissions are proportional to the economic development and growth.

According to Wikipedia: http://en.wikipedia.org/wiki/Gross_domestic_product

GDP = private consumption + gross investment + government spending + (exports − imports)

According to Wikipedia: http://en.wikipedia.org/wiki/GNP

Gross National Product (GNP) is the market value of all products and services produced in one year by labor and property supplied by the residents of a country. Unlike Gross Domestic Product (GDP), which defines production based on the geographical location of production, GNP allocates production based on ownership.

The United States used GNP as its primary measure of total economic activity before 1991, when it began to use GDP.[3] In making the switch, the Bureau of Economic Analysis (BEA) noted both that GDP provided an easier comparison of other measures of economic activity in the United States and that "virtually all other countries have already adopted GDP as their primary measure of production.

 

[Big ole Boy]

Can somebody here paint the way forward?

Whats next?

How do we get to that next place .... that place ....

... you know that place where we all survive .... and eveybody lives happily everafter ...

 

[Couch Potato]

The current administration is not interested in developing carbon fuels.

Gasification of coal has been around since WWII. As long as the infrastructure and cost of producing gasoline was cheaper from drilling and refining, there was no need for it.

Today there is no need because it is opposed. We are choosing high fuel prices and high energy prices by our environmentalism. We don't mind buying oil from the Mideast, South America, Mexico and Canada.

It is a known fact that emissions are proportional to the economic development and growth.

Ah, but Joule is using emissions, specifically that most evil of emissions carbon dioxide, as the input to produce the fuel. Note the presence of John Podesta on the board of directors before making a judgement on the administrations interest.

If the carbon emissions in the diesel fuel are merely the recycled emissions from another source that would have been placed in the atmosphere whether or not they temporarily became diesel fuel it is hard for any to make a case against using the diesel fuel.