US GDP shrinks 2.9% in first quarter

[tranquilium]

The simple answer: when interest rates rise, there are new bonds in the market paying that higher interest rate (bonds are issued all the time). So the new bonds are more desirable, and the existing bonds less desirable. The existing bonds must therefore trade at a discount to the new bonds to attract buyers.

Slightly less simple answer: it's a mathematical function, as bond prices depend on the prevailing discount rate (the interest rate). Price = (C/(1+i)) + (C/(1+i)^2) + (C/(1+i)^3) + ....+ (C/(1+i)^n) + (M/(1+i)^n)

C = coupon payment
n = number of payments
i = interest rate or required yield
M = value at maturity (or par value)

When C, n, and M are held constant and i increases, the price falls.

Ah, if you are referring to the bonds, then I need to mention that less than 1/3 of the foreign debt hold by China is in the form of US bonds, also quite a bit of the bond was bought prior to 2006 where the flat rate was once as high as 3.4%.

Also, it really isn't "losing money", more like it isn't making as much money as it could have.

The reason I went to capital flow first is that capital outflow, especially large amount of it, is the one that can actually harm the economy.

 

[LeveragedBuyout]

Ah, if you are referring to the bonds, then I need to mention that less than 1/3 of the foreign debt hold by China is in the form of US bonds, also quite a bit of the bond was bought prior to 2006 where the flat rate was once as high as 3.4%.

Also, it really isn't "losing money", more like it is making as much money as it could have.

The reason I went to capital flow first is that capital outflow, especially large amount of it, is the one that can actually harm the economy.

Understood, and I agree that capital outflow is the larger risk, but it's not good for China to mark losses on its UST holdings, either. I apologize, I'm tired, so I won't rehash the whole argument here, but if China has losses on its UST holdings, then that will either cause inflation in China, or cause Chinese tax levels to rise. It's not the greatest danger, but it's not something to be easily dismissed, either.

 

[tranquilium]

Understood, and I agree that capital outflow is the larger risk, but it's not good for China to mark losses on its UST holdings, either. I apologize, I'm tired, so I won't rehash the whole argument here, but if China has losses on its UST holdings, then that will either cause inflation in China, or cause Chinese tax levels to rise. It's not the greatest danger, but it's not something to be easily dismisses, either.

Eh, that sorta of things happen. If you make investment, you gotta take risks. Comparing to risk of other types of investments, the ones associated with bond is pretty mild.

Typically when people talk about economies, especially developing ones, losing capital when a dominate economy raise interest rate, they typically refer to rapid capital outflow. The concept is rather simple. Dominate economy raise interest--->better investment opportunities--->investor withdrawn capital from lesser economies and invest it into the dominate one---->lesser economy loses capital. If the lesser economy is too small or lack financial independence, the foreign capitals can take up very large portion of the economy that by removing these capitals, the entire flow is disrupted and even terminated. This can be very devastating.

Resistance to this type of market change comes in varies forms. Larger economies are naturally more resistant because domestic capital is much larger. Financial independence allow the country to deploy countermeasures such as raising interest rate of its own. Socialist countries like China can also deploy additional countermeasures such as imposing restrictions on capital outflow and preemptively reducing the amount of foreign capital in the market or keeping them out of the core sectors all together.

(Off topic, there is also another way, humorously referred as the Russian way. Basically, in 97 Southeast Asia financial crisis. Soros and co was attacking the Russian futures market and the Russians, being Russians, responded in typical Russian way. They politely announced (to the effect of) that all Russian bonds (which was used to attack the Russian futures market) are annul and void. Since Soros can't convince pentagon to start a nuclear war with Russia to get his money back, he couldn't really do anything to the Russians.)

 

[liall]

Why cant US get its shit right? So many countries in the world depend on it to do good speciaaly my home country India. So much of IT services go to US. We are already not doing so well. US Plz. You are an educated country sure you can find some one with brain as your president. Stop experimenting with first black president or first blonde female president and elect some one useful. Thank you!

 

[LeveragedBuyout]

Why cant US get its shit right? So many countries in the world depend on it to do good speciaaly my home country India. So much of IT services go to US. We are already not doing so well. US Plz. You are an educated country sure you can find some one with brain as your president. Stop experimenting with first black president or first blonde female president and elect some one useful. Thank you!

One of the best books I've read in recent years, and one of the saddest, is "The Forgotten Man" by Amity Shlaes. It details how FDR's insane appetite for experimentation and tweaking prolonged the Great Depression by years. It's been in Democrat DNA ever since to operate on the US economy like a drunk surgeon and see what happens to the patient when the liver is dissected, or the left lung removed. If, at the very least, they would stop making changes, then businesses could adjust. But Democrats feel the need to keep tightening the screws for their own sick pleasure.

The best we can hope for from Obama is that he returns to being an empty suit and does no more damage in his lame duck years. Fortunately, with a Republican takeover of the Senate looking probable in November, he won't be able to do much at all.

 

[tranquilium]

Why cant US get its shit right? So many countries in the world depend on it to do good speciaaly my home country India. So much of IT services go to US. We are already not doing so well. US Plz. You are an educated country sure you can find some one with brain as your president. Stop experimenting with first black president or first blonde female president and elect some one useful. Thank you!

Well, here is something that the Chinese spent a century learning, with a tuition of hundreds of millions of lives-----as a country, you can't count yourself on the good wills of others, you have only yourself to depend on.

 

[liall]

Well, here is something that the Chinese spent a century learning, with a tuition of hundreds of millions of lives-----as a country, you can't count yourself on the good wills of others, you have only yourself to depend on.

Dude it will take lot of time for India to be strong enough on her own. May be 2-3 decades but for now even your country depends a lot on US like the rest of the world. If US economy tanks who are you going to export your manufactured goods?

 

[Chinese-Dragon]

Dude it will take lot of time for India to be strong enough on her own. May be 2-3 decades but for now even your country depends a lot on US like the rest of the world. If US economy tanks who are you going to export your manufactured goods?

Well, @tranquilium was referring more to "good will". It's true, you cannot depend on the good will of other countries. You can hope for it, but you can't depend on it.

When people invest in China, they don't do it out of good will. They do it because they think they can get a good return on their money.

When countries don't invade China, it's not out of good will, it's because we (nowadays at least) have the capability to defend ourselves, which will cost them more than what they gain.

You could say that in a globalized and interconnected world, countries are relatively dependent on each other, this is very true.

But that doesn't mean countries should not take steps in order to become more self-reliant. China for example has enough Shale gas reserves to last thousands of years, that is something that needs to be developed very strongly. We also have the world's largest consumer base, so we can take steps to somewhat insulate ourselves from the problems of the outside world, to an extent. Not completely of course, but to an extent.

 

[pigtaker]

Why cant US get its shit right? So many countries in the world depend on it to do good speciaaly my home country India. So much of IT services go to US. We are already not doing so well. US Plz. You are an educated country sure you can find some one with brain as your president. Stop experimenting with first black president or first blonde female president and elect some one useful. Thank you!

the problem is US has run out of its talent, and It can't elected a good leader these days, evidenced by recent candidates after clinton. US' downward spiral is for sure.

Dude it will take lot of time for India to be strong enough on her own. May be 2-3 decades but for now even your country depends a lot on US like the rest of the world. If US economy tanks who are you going to export your manufactured goods?

are you kidding? US sucker the world blood through its manipulation of dollars. A collapsed US would only benefit us.

 

[Beidou2020]

the problem is US has run out of its talent, and It can't elected a good leader these days, evidenced by recent candidates after clinton. US' downward spiral is for sure.


are you kidding? US sucker the world blood through its manipulation of dollars. A collapsed US would only benefit us.

The gullible fools have been brainwashed into thinking the world needs the Yankees for everything. No wonder they loved living under foreign rule.

Yankee collapse would be the best thing to happen to humanity.

China has grown very fast without the Yankees.

 

[pigtaker]

The gullible fools have been brainwashed into thinking the world needs the Yankees for everything. No wonder they loved living under foreign rule.

Yankee collapse would be the best thing to happen to humanity.

China has grown very fast without the Yankees.

Yes, they felt it is an honor for US to buy their product and service. But they never doubt why US could use their printed money to maintain a comfort life, while others has to work their tails off to make americans live well.

 

[55100864]

US will not collapses suddenly, US collapses would not benefit China, it will creates a power vacuum in the whole world, and destabilize the region. A slowly declining US is the best interest for China.

 

[liall]

The gullible fools have been brainwashed into thinking the world needs the Yankees for everything. No wonder they loved living under foreign rule.

Yankee collapse would be the best thing to happen to humanity.

China has grown very fast without the Yankees.

And the shit talk. Why cant you be friendly for a second?

 

[Hasbara Buster]

The real U.S. economy has been shrinking since the 70's.

 

[senheiser]

The economy slowed due to a harsh winter. Economists aren't particularly worried because surging growth is expected for the rest of the year.

the winter huh?