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Foreign demand falls for Treasuries

You mean during Clinton?

Yes, during his administration we eliminated some of the tax breaks for the wealthy and cut military spending and our debt leveled off for the first time since Reagan cut taxes for the wealthy and raised military spending.
 
China has been keeping its currency artificially low (about 6.8 yaun per dollar).

The dollar recently rallied recently due to the economic events in europe, so this may be an act by the chinese to maintain its pegged position on the dollar. I am not certain though.

Chine lowered it's holdings in Q4, before the Euro went into the tank.
 
I suspect we will see an increase in the US government purchasing its own debt using a third party as a middle man just as they have been doing recently.

Watch for inflation.
 
Yes, during his administration we eliminated some of the tax breaks for the wealthy and cut military spending and our debt leveled off for the first time since Reagan cut taxes for the wealthy and raised military spending.

thats not what i see in your graph
 
What are our myriad critical interests that require a larger more effective offensive military capability?

One such key interest involves East Asian stability. The U.S. security role has helped maintain stability in an area where rivalries still exist. In the absence of a U.S. security role, the region might well have succumbed to the kind of arms races, including in nuclear arms, and even conflicts that had occurred in the past from time to time. That would have diverted resources and efforts of those countries from economic growth and development.

In short, stability in East Asia has played an important role in making it possible for that region to develop robustly growing economies and improving living standards. That economic growth/development has benefited the U.S., too. The U.S. has a major stake in ensuring such stability continues and the busy Pacific shipping lanes cannot be blocked by any single nation.

Another key interest involves a capacity to prevent a hostile state from dominating the Persian Gulf Region through which a disproportionate share of the world's present oil passes. That share will grow over time based on proved reserves and depletion in other parts of the world. Needless to say, a credible energy policy that seeks to move the U.S. and its allies away from reliance on oil for a large share of its energy needs would be a wise investment. The geopolitical and national security argument for such investment is a strong one.

Those are two examples. When one is evaluating the capabilities the U.S. needs, one needs to factor in the net benefits/opportunity costs associated with various capability options. A pure look at military spending as a percentage of GDP overlooks that broader context.

Our current military spending almost equals the rest of the world combined. Why would cutting that spending by 50% hurt our defensive capability?

Personally, I don't know what level of reduction could be possible before each dollar of cost savings would yield adverse consequences (increased risk, adverse consequences from growing instability in key theaters, reduced deterrence, etc.,) that outweigh the financial savings. Only a robust and comprehensive examination would provide the proper details. My guess is that meaningful savings (perhaps on the order of 5% or more of annual national defense expenditures excluding costs related to the Afghanistan/Iraq military operations) probably can be derived without harming national security, but I can't put an exact number on it.

My point is that the U.S. military, even as it is expected to become more efficient and effective, needs to be sustained at a level whereas the U.S. is able to preserve/advance its critical interests.
 
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One such key interest involves East Asian stability. The U.S. security role has helped maintain stability in an area where rivalries still exist. In the absence of a U.S. security role, the region might well have succumbed to the kind of arms races, including in nuclear arms, and even conflicts that had occurred in the past from time to time. That would have diverted resources and efforts of those countries from economic growth and development.

In short, stability in East Asia has played an important role in making it possible for that region to develop robustly growing economies and improving living standards. That economic growth/development has benefited the U.S., too. The U.S. has a major stake in ensuring such stability continues and the busy Pacific shipping lanes cannot be blocked by any single nation.

I have several problems with that line of thinking, we were not elected to be the world's policeman and it is not in our founding charter, the Constitution.
There is also the thinking that our interference and support for the various flavors of our economic interest through the years has prevented the natural order of civil wars for people to decide on their own how they will be run rather than some colonial power deciding what is best for them.
Another key interest involves a capacity to prevent a hostile state from dominating the Persian Gulf Region through which a disproportionate share of the world's present oil passes. That share will grow over time based on proved reserves and depletion in other parts of the world. Needless to say, a credible energy policy that seeks to move the U.S. and its allies away from reliance on oil for a large share of its energy needs would be a wise investment. The geopolitical and national security argument for such investment is a strong one.

We should have started in the 70's moving away from an oil based economy when we passed peak oil. I can not morally justify our military domination of another country's resources based on our own stupidity in the past and present greed.

It is their oil and they have a right to do with it as they choose. Personally, given that is their main resource and it is in such demand world wide, I cannot imagine they would not sell it, do you?

Those are two examples. When one is evaluating the capabilities the U.S. needs, one needs to factor in the net benefits/opportunity costs associated with various capability options. A pure look at military spending as a percentage of GDP overlooks that broader context.

Right, both positive and negative effects from an interventionist foreign policy.

Personally, I don't know what level of reduction could be possible before each dollar of cost savings would yield adverse consequences (increased risk, adverse consequences from growing instability in key theaters, reduced deterrence, etc.,) that outweigh the financial savings. Only a robust and comprehensive examination would provide the proper details. My guess is that meaningful savings (perhaps on the order of 5% or more of annual national defense expenditures excluding costs related to the Afghanistan/Iraq military operations) probably can be derived without harming national security, but I can't put an exact number on it.

Bush doubled our annual military budget. Do you feel the US was unsafe before that period?

My point is that the U.S. military, even as it is expected to become more efficient and effective, needs to be sustained at a level whereas the U.S. is able to preserve/advance its critical interests.

I feel those interests should be limited to defense, in keeping with our ethical and debt reduction goals.
 
I have several problems with that line of thinking, we were not elected to be the world's policeman and it is not in our founding charter, the Constitution.

The Constitution does not prohibit an engaged foreign policy.

There is also the thinking that our interference and support for the various flavors of our economic interest through the years has prevented the natural order of civil wars for people to decide on their own how they will be run rather than some colonial power deciding what is best for them.

Without doubt, the U.S., like any other nation, has made some foreign policy mistakes. IMO, contributing toward East Asian reconstruction and then stability following World War II was one of the better long-term policies. The absence of warfare among let's say China and Japan and the economic miracles that saw large parts of East Asia become economic powerhouses so to speak have greatly benefited the U.S. The economic benefits from trade dwarf both the costs of reconstruction and the costs of maintaining bases in that part of the world.

We should have started in the 70's moving away from an oil based economy when we passed peak oil.

No disagreement about moving away in the 1970s. Unfortunately there was a failure to learn from the twin energy shocks of the 1970s and, the early verdict appears that there has also been a failure to learn from the 2008 oil price spike.

I can not morally justify our military domination of another country's resources based on our own stupidity in the past and present greed.

It is their oil and they have a right to do with it as they choose.

I didn't advocate that at all. My point was that the U.S. needs a capability to keep the Persian Gulf's shipping lanes open e.g., to prevent let's say Iran from shutting down those lanes to serve its political interests at the expense of the region's other sovereign states and their trading partners. Those shipping lanes are one of the world's chokepoints and no country should be able to block shipping in those vital international waters. Now, if the region's countries choose, for whatever reason, not to sell oil, that's an entirely different proposition from what I was discussing.

Right, both positive and negative effects from an interventionist foreign policy.

Whether or not the U.S. chooses a foreign policy of engagement vs. abdication has trade-offs, including budgetary ones. A more focused foreign policy might provide better utilization of human and financial resources and greater coherence with respect to national interests. IMO, abdication would go too far and the adverse impact on U.S. interests would outweigh any short-term financial savings that might result. In a worst-case scenario, abdication could prove as disastrous as non-interventionism was during the early years of WW II and, with the U.S. entering the war at a more advanced stage in that global conflict, the costs (human, economic, and financial) were far greater than they would have been had the U.S., for instance, unequivocally pledged to come to France's or Britain's aid were Germany to attack them (possible deterrence) and done so immediately when those red lines were crossed (less war damage, quicker end to the war, etc.).

I feel those interests should be limited to defense, in keeping with our ethical and debt reduction goals.

There is broad consensus among the major foreign policy schools (Liberal internationalism, Realism, and Neo-conservatism) over a large share of interests, even as those schools have differences e.g., the neo-conservatives are more willing to justify the use of force to advance democracy (something that I think is overreach, as democracy is function of traditions, laws, institutions, etc., not who heads a country or whether a country holds elections). The main point is that the U.S. is not likely anytime soon, whether it is headed by a Democrat or Republican, to embrace abdication. So, a defense posture based strictly on such an approach is not a likely outcome.
 
Kind of funny how our debt has been growing steadily for 30 years but only now it is "Obama's" out of control spending. I wonder what it was called when Reagan was doing it.

Let's be realistic when we're discussing graphs.

514px-USDebt.png


The bottom one is far more relevant than the top (which is still more relevant than using one not adjusted for inflation).

Goldenboy219,

Health care reform could provide such an impact if it is designed properly. However, political efforts were made to gut even modest cost-savings tools e.g., existing physician payments schemes.

As the doctor fix goes, so goes the nation.

I agree the out of control medical costs are the biggest hurdle but the price tag for our wars in Iraq and Afghanistan are hardly insignificant. The bill in December 2008 was $1 trillion dollars.

The $1 Trillion Bill for Bush's War on Terror - TIME

Not insignificant, but not much compared to Medicare's $89 trillion unfunded liability.

I have several problems with that line of thinking, we were not elected to be the world's policeman and it is not in our founding charter, the Constitution.

The Constitution also doesn't mention joining and providing funding/troops for an international "world's policeman," but most people making your objection don't seem to have a problem with that.

There is also the thinking that our interference and support for the various flavors of our economic interest through the years has prevented the natural order of civil wars for people to decide on their own how they will be run rather than some colonial power deciding what is best for them.

And on those occasions where we've refused to get involved, it's been much better for all those involved. Just ask the Tutsis how happy they are to live in a country that practiced self-determination.
 
The Constitution does not prohibit an engaged foreign policy.

It does not authorize either.

No disagreement about moving away in the 1970s. Unfortunately there was a failure to learn from the twin energy shocks of the 1970s and, the early verdict appears that there has also been a failure to learn from the 2008 oil price spike.

Agreed.

I didn't advocate that at all. My point was that the U.S. needs a capability to keep the Persian Gulf's shipping lanes open e.g., to prevent let's say Iran from shutting down those lanes to serve its political interests at the expense of the region's other sovereign states and their trading partners. Those shipping lanes are one of the world's chokepoints and no country should be able to block shipping in those vital international waters. Now, if the region's countries choose, for whatever reason, not to sell oil, that's an entirely different proposition from what I was discussing.

We had the capability to keep the Persian Gulf's shipping lanes open before Bush doubled the military budget.

Whether or not the U.S. chooses a foreign policy of engagement vs. abdication has trade-offs, including budgetary ones. A more focused foreign policy might provide better utilization of human and financial resources and greater coherence with respect to national interests. IMO, abdication would go too far and the adverse impact on U.S. interests would outweigh any short-term financial savings that might result. In a worst-case scenario, abdication could prove as disastrous as non-interventionism was during the early years of WW II and, with the U.S. entering the war at a more advanced stage in that global conflict, the costs (human, economic, and financial) were far greater than they would have been had the U.S., for instance, unequivocally pledged to come to France's or Britain's aid were Germany to attack them (possible deterrence) and done so immediately when those red lines were crossed (less war damage, quicker end to the war, etc.).

Not sure how any of that applies to our invasion/occupation/regime change/new Iraqi oil law in Iraq.
There is broad consensus among the major foreign policy schools (Liberal internationalism, Realism, and Neo-conservatism) over a large share of interests, even as those schools have differences e.g., the neo-conservatives are more willing to justify the use of force to advance democracy (something that I think is overreach, as democracy is function of traditions, laws, institutions, etc., not who heads a country or whether a country holds elections). The main point is that the U.S. is not likely anytime soon, whether it is headed by a Democrat or Republican, to embrace abdication. So, a defense posture based strictly on such an approach is not a likely outcome.

I understand that but it does not address the ethics of our foreign policy of killing innocent people and militarily dominating their countries due to our interest in their oil.
 
Not insignificant, but not much compared to Medicare's $89 trillion unfunded liability.

Exactly the reason Health Care Reform is needed.

The Constitution also doesn't mention joining and providing funding/troops for an international "world's policeman," but most people making your objection don't seem to have a problem with that.

I never claimed to speak for most people. I am presenting the moral argument.

And on those occasions where we've refused to get involved, it's been much better for all those involved. Just ask the Tutsis how happy they are to live in a country that practiced self-determination.

So we are to be the "deciders" of how all other countries are to be run?
 
Exactly the reason Health Care Reform is needed.

How exactly will health care reform fix Medicare's unfunded liability?

I never claimed to speak for most people. I am presenting the moral argument.

No, you're presenting a legal argument, claiming that the Constitution doesn't authorize it. How on earth is that a moral argument?

So we are to be the "deciders" of how all other countries are to be run?

Yes, that's exactly what I said.
 
China is selling our debt what will this do to our economy? Obama's out of control spending may need to stop.

May need to stop..........May need? :shock:
 
Yes, that was OBL's stated plan. And its been working! However, I do not understand what do you mean by this:"U.S. has a need for a larger and more effective military capability than many other countries do given its myriad critical interests."

What are our myriad critical interests that require a larger more effective offensive military capability?

Our current military spending almost equals the rest of the world combined. Why would cutting that spending by 50% hurt our defensive capability?

Cutting our military by 50%, and the commitments cuts that the 50% cut would require, would decimate Europe's Public health Care system.

They would have to spend the money on their military instead of relying on us for protection.
 
It does not authorize either.

The Founders were sufficiently wise to focus on defining the powers to be given to each branch of government, while avoiding rigid constraints so as to allow the nation's policymakers sufficient latitude to define a foreign policy consistent with its interests and requirements, both of which can change over time. Setting forth a rigid legal prescription within the Constitution would have been a terrible error that would only have provided foreign policy paralysis.

We had the capability to keep the Persian Gulf's shipping lanes open before Bush doubled the military budget.

A capability to maintain open shipping lanes in the Persian Gulf was one example of a vital international interest. A nation's defense posture can't be grounded solely in a single interest.

I understand that but it does not address the ethics of our foreign policy of killing innocent people...

The U.S. has no policy that advocates the killing of innocent people. In fact, just the opposite is true. For example, the February 15, 2010 edition of The New York Times revealed efforts that U.S. is undertaking to minimize civilian casualties:

They [NATO and Afghan military officials] acknowledge that the rules entail risk to its troops, but maintain that civilian casualties or destruction of property can alienate the population and lead to more insurgent recruits, more homemade bombs and a prolonged conflict.

But troops complain that strict rules of engagement -- imposed to spare civilian casualties -- are slowing their advance into the town of Marjah in Helmand province, the focal point of the operation involving 15,000 troops.
 
Is China Turning Bearish on the U.S. Treasury? / The Christian Science Monitor - CSMonitor.com


If China is indeed losing its taste for Treasuries, its timing could not have come at a worse time. The federal government has to finance over $1.3 trillion in deficit spending this fiscal year. And in the past, the U.S. has relied on China to buy not only Treasuries, but corporate and mortgage debt as well. Without China in the picture, it’s unclear where all this money will come from.

For years, concerns over the growing U.S. debt to China—estimated at $755 billion—were met with calming explanations of the economic interdependence of the two superpowers. After all, the argument went, China wouldn’t ever sell off its U.S. paper because the two economies need each other so much.

While that symbiotic relationship remains, it might not be enough to persuade the Chinese to continue lending us billions of dollars annually. Decisions of foreign leaders aren’t driven by budget finances alone: continued arms sales to Taiwan, free-speech issues raised by Google and others, and unhappiness with currency valuations could all come into play. And the Chinese might decide that the benefits of a more diversified portfolio and protection against an inflated dollar might outweigh the costs of selling off T-bills.
 
Is China Turning Bearish on the U.S. Treasury? / The Christian Science Monitor - CSMonitor.com


If China is indeed losing its taste for Treasuries, its timing could not have come at a worse time. The federal government has to finance over $1.3 trillion in deficit spending this fiscal year. And in the past, the U.S. has relied on China to buy not only Treasuries, but corporate and mortgage debt as well. Without China in the picture, it’s unclear where all this money will come from.

For years, concerns over the growing U.S. debt to China—estimated at $755 billion—were met with calming explanations of the economic interdependence of the two superpowers. After all, the argument went, China wouldn’t ever sell off its U.S. paper because the two economies need each other so much.

While that symbiotic relationship remains, it might not be enough to persuade the Chinese to continue lending us billions of dollars annually. Decisions of foreign leaders aren’t driven by budget finances alone: continued arms sales to Taiwan, free-speech issues raised by Google and others, and unhappiness with currency valuations could all come into play. And the Chinese might decide that the benefits of a more diversified portfolio and protection against an inflated dollar might outweigh the costs of selling off T-bills.

China is taking a very gradual path toward diversifying its foreign investments. It is not dumping Treasury securities.

IMO, while the timing of the possible shift in China's policy might be a little inconvenient given forthcoming financing needs for the U.S., it is also fortunate in a way that it might result in U.S. policymakers having to put some focus on the nation's long-term fiscal imbalances sooner than they might otherwise choose to do so. If so, earlier efforts to address those fiscal imbalances would lead to a less painful fiscal consolidation. In terms of reduced Chinese appetite for mortgage and corporate debt, such a development could also provide a constraint that reduces the risk of overleverage down the road. In the long-run, that, too, would not be a bad development.

In sum, while there are short-term costs associated with the possible new Chinese policy, the long-term benefits could greatly outweigh those costs if U.S. policymakers become serious about fiscal consolidation and U.S. households and corporations avoid becoming overleveraged.
 
China is taking a very gradual path toward diversifying its foreign investments. It is not dumping Treasury securities.

IMO, while the timing of the possible shift in China's policy might be a little inconvenient given forthcoming financing needs for the U.S., it is also fortunate in a way that it might result in U.S. policymakers having to put some focus on the nation's long-term fiscal imbalances sooner than they might otherwise choose to do so. If so, earlier efforts to address those fiscal imbalances would lead to a less painful fiscal consolidation. In terms of reduced Chinese appetite for mortgage and corporate debt, such a development could also provide a constraint that reduces the risk of overleverage down the road. In the long-run, that, too, would not be a bad development.

In sum, while there are short-term costs associated with the possible new Chinese policy, the long-term benefits could greatly outweigh those costs if U.S. policymakers become serious about fiscal consolidation and U.S. households and corporations avoid becoming overleveraged.

China sold $34.2bn is that gradual? It has been one month no one can say what they will do over the next few months especially with Obama pissing them off.
 
China sold $34.2bn is that gradual? It has been one month no one can say what they will do over the next few months especially with Obama pissing them off.

http://www.ustreas.gov/tic/mfh.txt

They bought $23b in March 09, bought $38b in May 09, sold $25b in June 09, bought $25b in July 09, sold $10b in Nov. 09, and sold $34b in Dec. 09.

Yea, I'd say that's gradual and well within their normal range of behavior.
 
http://www.ustreas.gov/tic/mfh.txt

They bought $23b in March 09, bought $38b in May 09, sold $25b in June 09, bought $25b in July 09, sold $10b in Nov. 09, and sold $34b in Dec. 09.

Yea, I'd say that's gradual and well within their normal range of behavior.

Then why are financial people saying this is something to watch?
 
Then why are financial people saying this is something to watch?

...because "make things seem more important than they are" is the core principle of all media?
 
Then why are financial people saying this is something to watch?

It's important to see if a new trend that diverges from past behavior develops. At a time when the U.S. fiscal situation is coming under greater scrutiny, one has to look for indications that might entail realization of risks associated with that fiscal situation.
 
It's important to see if a new trend that diverges from past behavior develops. At a time when the U.S. fiscal situation is coming under greater scrutiny, one has to look for indications that might entail realization of risks associated with that fiscal situation.

Obama selling weapons to Taiwan and meeting with the Dalai Lama is not helping.
 
Obama selling weapons to Taiwan and meeting with the Dalai Lama is not helping.

Those are points on which U.S. and Chinese foreign policy diverge. Those are irritants for China, but the impact should be limited. There won't be a rupture in relations.

Significant damage in relations or an outright rupture in relations would arise if, for example, the U.S. rescinded its "One China" policy or if it recognized Tibet as an independent state. Neither outcome is even remotely likely at this time.
 
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