Friday, October 22, 2010

Alarmist... ads depicting the U.S. as some sort of debtor nation owning its future production to creditor nations is nonsense, and exhibits a misunderstanding of the mechanics of modern fiat non-convertible currencies. The hyper-linked ad above is a good example of this. The Chinese do not "own" us. They hold Treasuries in an account at the Fed. These accounts gain regular coupon payments and a final payment of principal at maturity. This is all done through spreadsheet accounts at the Fed. They do NOT own future production, nor can they indenture us all into perpetual servitude.

If anything, the reverse is true. We have the goods the Chinese have produced. They have electronic accounts. Who has "won" in this arrangement? And, given your knowledge of the stability of Communist regimes, who is more likely to be gloating over the decline of a nation in 2030?

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