Debt Loops Rationale and Effects

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Positive and negative effects of China's devaluing of their currency
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[@WilliamEGD]

It's amazing what's being taught here. his is why I love youtube. I can watch a man in Brazil playing amazing classical guitar and also be taught in step by step process what's currently happening in the economy. Thank you Khan!

[@6v318]

This was so insightful. Relevant after 11 years. Thank you so much!

[@HolloMatlala1]

I wish i could say i figured this whole cycle on my own....but flip that tingly feeling of "Hope" i got 10 years back even when everybody calls you Mad....🙏🏽 Thanks for Innovation Instinct. And people in the so called spirit of "Competition" keep trying to copy what they fully don't understand.

[@HolloMatlala1]

And it hurts that the past 3 years my Mind and body has been hijacked and controlled....Their primary Energy driver has been agendas and proving their own points....but with "Time".

[@ananiasacts]

What an excellent description of what's going on. You are one hell of an asset to humanity!

[@Zebra663]

What a fantastic video! Thank you!

[@chatsociety]

Love it, this is a great way to learn!

[@Jotto999]

Can't wait to see the next!

[@zalida100]

This is easily understandable for high school kids, and I'm sure they'd find it useful. Fantastic video series, especially for dummies like me. Thanks very much.

[@kuhan1870]

Will look forward to the next video

[@grubby314]

Fantastic videos!

[@danipereira7350]

Obrigado a todos os tradutores que fizeram a tradução do inglês para o português estou aprendendo muito !!!!!!!

[@kennganga537]

Most elaborate explanation online

[@poiuwnwang7109]

I usually dont give comments, but he is suuuuuuper!!!!

[@madk777]

Hey Sal, thanks for all the info on banking and finance. I was wondering, could you do a more in-depth video about the effects of the Fed buying up massive amounts of treasuries (like they are doing now)? If you can that would be great. I watched the yield curve and other videos on this subject, but I would really like to get more of an idea if what happens to the markets when this occurs. Thanks for everything :D - Karim

[@stardaveable]

I think you overestimate China's economy reliance base on exporting to US, in 2011 trade deficit between US and China was 282 billion, China's GDP in 2011 was 7298 billion, that means the deficit was only 3% of China's GDP. If China lost US market, it will be a big impact, but they will survive because they have already in a process to diversify their internal market and opening up export to other parts of the world. If you said this 10 years ago I would agree with you, cause it was almost 15%

[@johnybravo5667]

The only problem is that US overall national debt grows exponentially.

[@2237lemon]

From the U.S. perspective... thats why you tax imports heavily... higher tax revenue means lower defecits and less need to inflate the money supply to maintain economy... better austerity on pork spending helps too..this gives time for a manufacturing base to return until the trade imbalance is corrected.. Allowing manufacturing base offshore with no repercussion of higher import taxes distorts the trade imbalance perpetually .. offset higher wages here with higher import taxes on cheap labor

[@heatherhutchinson3625]

This ages so well

[@sijokuriakose3895]

Its making a full circle. 2020

[@ronnywijaya]

where would it might go? oh I'm so curious for the the next video.

[@VickiBee]

Speaking of debt LOOPS, I wish you had a video of what a debt ceiling actually is. My friend who does this work said that John Boehner and Ted Cruz didn't even know what the hell a debt ceiling iS. I asked him "What IS a debt ceiling? IDK either." "Yeah well...you're not SUPPOSED to know but those fools should." That didn't tell me what it was though. He said it was a concept, but I'd like to see a video of what it is.

[@thecommentermaker]

Love the video. Sometimes I hate the previous generation. Such is life.

[@PhillipWolff]

Just got a flash from Future Me watching this video and saying, "Gahhh! Why didn't I do _____ about this!?"

[@impactodelsurenterprise2440]

In short: China has some kinda controls over US interest rate simply by holding owning a large chunk of US debts, which only cost them less than 10% of their GDP.

[@099749]

@Zeuts85 I forgot I wrote that, well, they would still need to print yuan to maintian the peg. You would probably annoy people that play the currency markets as chinese bank would be then be playing the role of americans with yuan to exchange for dollars. Besides a trade imbalence is a trade imbalence, China could use their reserves to susidise imports for a while and use up dollars that way but it interferes too much I think.

[@bruins3315]

@yukit91 If the value of the dollar drops then Chinese goods become relatively more expensive. Their economy is so export based that if the yuan becomes too expensive to the point where Americans can't buy their goods then their economy will collapse. Thus they have to debase the yuan even further. I think that's how it works. It's not a good situation.

[@Freezieification]

If it were to "unwind" wouldn't that cause Chinese products that the US buys to go up in price as well? Harder to get money and rising costs of Chinese products too?

[@fayning]

Looks like, we're in the unwinding part of the cycle now?

[@2237lemon]

... I tend to stay on the Austrian side and beleive in no debasement with a free float with fair currency negotiation rather than Keynesian printing and debasement with no fair float because it causes currency instability on a gflobal scale resultinng in currency wars.

[@10fcull44]

Great video, but WHY would China suddenly "decide to stop buying US debt"..?

[@hoganmcdade]

they wont need to sell to us so heavily once their middle class is strong enough to buy the products china makes. Since they won't need us to buy all of their goods anymore, they don't need to keep funding us.

[@SalsaTiger83]

@freezingbeast if they are liquid assets, than they have to be another country's currency, thus "doing it" to another country.

[@Civsuccess2]

The only drawback is you and everyone who uses US dollars has to pay a certain percentage of your income to support the printing press. You'll get an inflationary tax of X%. It's horrible for US dollar owner (check your bank account). For us, the non dollar owning American, just get a new job with higher pay to cover the cost.

[@ThePeterDislikeShow]

The situation with China buying US bonds is like saying, "I need to keep lending money to my deadbeat friend or else all my previous loans to him will become worthless."

[@2237lemon]

... if China buys up treasuries with earned dollars there are still the same amount of dollars in circulation and no debasement ( except interest owed). If the Fed (the central bank) buys its own debt, then they print excess dollars into economy causing debasement. Same holds true for China. If they print Yuan to make up the difference in trade to pay workers then the Yuan gets debased. Instead they should be buying back Yuan from other countries which have an opposite balance with them...

[@2237lemon]

@afmutw , i'm just going by the float. If all global trade is happening by using a float and one isn't trhen there's not true free trade because currency cannot be traded by negotiation as it should be. Instead it trades by manipulation through printing. I think the difference lies in whether or not the debt is being boughten up by China in exchange for the dollars they earned or whether the Central banks are buying up their own debt which debases the currency...

[@yiminzhong785]

On the other hand, if the interest rate goes up, US dollar may appreciate and that makes Chinese products even cheaper to buy. Of course Amercian will spend less because there is no more "cheap" money to fill their pocket. So where does it go?

[@airballer27]

I have some questions. I will appreciate if you can answer. Is 30 Year Fixed mortgage interest rate mostly affected by Federal Reserve or US treasurey? Is 5/1 ARM mortagage interest rate by Federal Reserve or US treasurey? When Federal Reserve sets low interest rate, does it have any affect on US treasurey? Did Alan Greenspan play any role in housing market by setting interest rate low?

[@theinvestor5601]

Which video was the continuation of this one?

[@DanielRamBeats]

Here's the link to the playlist: kzbin.info/www/bejne/jnOsaHenqdmshbM

[@2237lemon]

@afmutw ... not enough characters to clarify a good point, but i beleive in sovereignty not one world free trade with regulation that undermines sovereignty. If china was allowed to freely debase their currency in the example khan gave simply to keep their cars cheap, that not fair competition or free trade at all but taxed trade. The currency war happening now is all about China not letting their currenmcy float so therefore the U.S. has to debase their currency as well. neithersideis fair/free

[@2237lemon]

@afmutw , i agree to some extent ,however trade should be between goods which cannot be produced in the country of origin. As an example. a Santolan fruit grown in the Phillippines, which cannot be grown in the U.S would be a good product trade for something that cannot be produced over there. But why should america allow cars made under cheap labor be shipped here when america has the big 3 so that our own corp cannot compete. Only tax those goods whos work are being unfairly shipped out of US

[@Civsuccess2]

Essentially, if Chinese cannot transfer US dollars to other currency (which is more risky than US dollars), Chinese has to buy US goods.

[@freezingbeast]

What if the Chinese Central Bank uses the dollars to buys non-dollar based liquid assets? do they still suffer the same problems if they try to unwind out of this cycle?

[@2237lemon]

@afmutw ,the tax on imports is already on the table because china is not letting their currency float like the rest they are partially pegged. Thats an unfair rade advantage and bad for the average chinese person who could have nondebased yuan working in their favor. After Nov.3 when america prints its going to cause a currency war until china completely unpegs and plays the float fairly. Although the U.S. is not playing fair either by debasing. and is bad for americans.

[@SalsaTiger83]

@HyperBorealOperator Maybe it is working, but you would be broke without it, therefore the effects look "insignificant"

[@Geekbuyfr]

what about Europe in all of this? I can imagine the mess in a world wide level ! Is there any kind of global regulation committee?

[@kevkeary4700]

when will dxy collape?

[@pytube2007]

can't wait for Sal's take on how this may unwind. sweet thing going for Chinese. they would certainly not want to be out of this for at least another decade! is this all going to end when the world becomes flat or what?!

[@conjugatemethod]

Sounds like you drank all of the Neoliberal Kool-aid.

[@lucas_chung]

i dont get why chinese government will hurt from stop buying treasure bills. as the dollars in chinese central bank is just financed through printing yuan. so in another word, they are just printing dollars. so why would they be hurt when the value of the dollar which are printed by themselves drop?

[@099749]

Ok what would happen if China started paying America back in dollars rather than in Yuan? To say what would happen if the central bank used it's dollar reserves to pay for american imports to china? and then the importers just gave a Yuan payment to the central bank? Surely chinese reserves in dollars would deminish, they could still maintain a curency peg, would that not work as a solution?

[@tinajackson3709]

Here is the thing. I am not sure whether it is right. Because America imports stuff into China, namely, its customers are Chinese. It would be impossible to buy it in US dollars. Have you seen that citizens of America or the most of European countries buy things with other countries'currency? It needs to be bought with domestic currency, then exchange into dollars . So, it is like the curse. And if one side stop trading, it would be devastating for both. That is one of the reason the two countries are not easy to start a war. The trade relationship is too close.

[@DanielRamBeats]

this is scary

[@murlin1980p]

well one thing not mentioned in this video (fatal error for me) is chinese buying us property companies and all the rest not only bonds; thus really sell consumables for land and property. All the rest looks ok, except one day us will wake up with manufacturing base, without land and without property; they will sell all so precious fruits of knowledge economy for pennies; this is really modernalized Mao idea with soft western approach

[@2237lemon]

@afmutw , i dont mean all imports, just all imports from countries who are not playing the float fairly. America also needs to play fair and not let the Fed print the currency into oblivion. I don;t beleive in currency debasement either, by either country. That's a corporate game to keep the rich rich and the poor , poor and the middle class complketely destroyed.. Ok well i've taken up the whole board now so i'll leave it that unless you have a rebuttal.

[@MrJaboley]

I have a question? because china bought us treasuries, the interest is low, till that point i get it, but when the interest rate is low, wouldn't the value of the treasuries be going up? so why would the china wanna sell that.... please somebody answer

[@dancrowley7975]

Price and yield and inversely related

[@spamdude1]

The videos up to this point have been factually accurate, but this one is seriously incomplete and misleading. For one thing, to say this is unambiguously positive for China, other than the unwinding issue, is clearly wrong. They are benefiting exporters at the expense of their own consumers -- goods are now more expensive because of the cheaper currency. You also focus on US loss of manufacturing, but aside from the recession, manufacturing output has continued to rise, check the data.

[@Civsuccess2]

I personally prefer US government to tax the rich 90% to pay China in case if they try to sell US IOU. In that way, there'd be no inflation. It's also a good distribution of wealth. The only problem is what China is going to do with that US Paper if they will not buying US goods?? They can dump it into trash or something.

[@paulceltics]

China is smart however they should have saw what was going on with their investment with the united states. if these treasuries were not like this, it would have been much better

[@Civsuccess2]

Chinese is screwed. Here is the problem. Chinese sells IOU. IOU can only be redeemable in US dollars. Who use US dollars??? There is only one nation that uses US dollar. It's the Americans. So how does Chinese get rid of those US dollars??? The only way possible is they buy US goods and services. If they try to sell it in open market, they will lose money due to market demand is low. Price will be lower.

[@muhammadm4582]

Economy of manipulation