China buys US bonds | Money, banking and central banks | Finance & Capital Markets | Khan Academy

[@khanacademy]

@jpzhouutube Yes, but it would devalue their currency. Most countries don't want to do that (makes it hard for their people to buy fuel, food etc.). Also, this isn't a theory; it is what China has been doing to devalue their currency.

[@LiveLifeWithLove]

Can you explain or make a full video .. why will someone buy Yuan if it is weak and sell US dollars to China ?

[@tonyp2865]

They aren't buying now are they Gus?

[@carlos1rrr111]

Hey i was wondering what website do u use to do this awesome stuff?

[@leoneo]

@jpzhouutube yes, you are right partially. The devaluing of the Chinese Yuan also plays role. By the way, Kahn was a professional hedge-fond manager so I do believe he knows some what more about economy than you have picked up from couple of books written for amateurs.

[@LiveLifeWithLove]

But how China buys US dollars who does exchange for weaker currency ? If Yuan is weak why will someone give US dollars for Chinese yuan if all trade is done in US dollars.

[@musak.4068]

@@LiveLifeWithLove You're overthinking it and confusing yourself. That's simply how the world works currently. Take it for what it is

[@stevenrogers5338]

Yo yo went deep to find this video please make an update on the consequences of doing this trade. Thanks

[@BroPaterno1]

yeah they're called Post It Notes

[@QuijanoPhD]

You have awesome mouse writing.

[@sterrshow5016]

He has a sketchpad

[@mimosveta]

this was very good, is there a longer version going more in debt. I kind of lost you at some points there, with "cost of borrowing for us gov goes down", why? "financing debt" what does that mean, paying it off?

[@musak.4068]

"more in depth"

[@mr.weasel2552]

By “cost of borrowing for the US govt goes down”, they mean that because the US govt borrows by issuing T bonds, and the price of the bonds increases leading to lower interest rates, the cheaper interest rates make borrowing easier. For example, we give China a piece of paper saying “hey, if you give us money, we’ll pay it back with extra money over time, as a price for lending us the money”. The money we pay back over time is the interest, and the lower the rates, the lower the amount we need to pay back on our loan from China. In other words, money is cheaper when interest rates are lower. Therefore, the “cost of borrowing” (the interest paid on the amount borrowed) goes down. Financing debt on the other hand refers to how how the US government makes money off of debt. Bonds are debt obligations, meaning the government borrows money from private institutions, other governments, and individual investors while obliging that they will be paid back. Corporations also issue bonds. Bond prices and yields are determined by a mixture of risk(risk of default, meaning that the issuer won’t be able to pay back the bond, like if a company goes bankrupt) and interest rates. In the case of the US government issued bonds, because the US government and economy are so strong, the yields of these bonds are very low since there is non-existent risk. These are widely considered the safest investments. So to answer your question, the US government issued a piece of paper saying “give us your money and we’ll go off and spend it and do government stuff and eventually we’ll pay you back that money with a little on top”. Aka debt financing.

[@AirLewis1988]

does this mean that a country that is running a current account surplus must be running a financial account deficit

[@murrowboy]

Khan, If China buys our bonds that means it'll keep interest rates low because there is more money. However they also buy US Dollars so that props up the dollar. Are you saying that China is giving us low interest rates and strong dollar at the same time? Don't low interest rates hurt the currencies?

[@yabonyramsy5532]

Thank

[@musak.4068]

yes and no

[@bluemagicuk]

0:00 what did i miss?

[@tullorush97]

In currency markets does actual physical cash change hands or is it all digital?

[@sterrshow5016]

A mixture of both but mainly digital

[@prodigiii712]

Khan Academy Please tell me what is the need for US to buy Chinese Yuan because they pay for Chinese exports with US dollars right?

[@lindseyshaffer9233]

Can Someone Please help me,... I am New at Investing in Stocks and Bonds and still trying to learn about everything,... Is it worth Investing in a Bank in China if the Price for stock is 0.71 here in America does it eventually Build anything worth my time how does that all work out does anyone know?... or has anyone tried it have any success?...

[@mimosveta]

I also don't understand what these bonds are, how are they tied to debt itself. I understand that if you own them, you get money from time to time, and then lump sum after certain time expires... but what does that have to do with trillions of dollars of national debt..

[@yearofthedawgs8581]

From my understanding, a bond is pretty much a loan. When you "buy" a bond from a government, you are essentially lending them your money, which they compensate you with interest payments. Basically, buying bonds from the government means that you are technically putting them in debt. So according to this video, China's goal is to buy as many Tbonds possible in order to indebt the US government to itself

[@jpzhouutube]

@daynvattah U implied china print too much money as this video. A T-bond to an American guaranty a return by term (fix income). Sold to Chinese named of “fix income” is non-sense. See now US asked Chinese to increase value of their currency, hence basically wrap out all guaranty return they invested. If I were them I will invest only under a term of fix exchange rate at a spot when bought (fix-income via fix-exchange rate). Well, this sounds easy, but China has no other safer place to put money

[@LiveLifeWithLove]

But how China buys US dollars who does exchange for weaker currency ? If Yuan is weak why will someone give US dollars for Chinese yuan if all trade is done in US dollars.

[@redle1988]

what happens to the Yuans bought by selling the U.S. dollars at first place? Does the U.S. govt has them?

[@simplyfacts123]

Aid.

[@jpzhouutube]

@daynvattah I know he is.. this is why I commented on. I do not usually comment on others. As I said this video gave a false impression that suggeted China's wealth was stocked by Gov mainly playing devalue of currency. We know this is NOT true. For over 30yrs, millions of chinese factory workers' hard working to make peny by peny (e.g Wal-Mart, K-mart, etc) to accumulate today's china wealth and then invested back to US......

[@tazdevil112]

can a country lie about their money supply? how do other countries know that a certain country's economy has gone down due to printing more money?

[@cjw6659]

I think printing endless supply of money is sort of lying anyway.

[@jpzhouutube]

A false impression u gave. Suggest you go back to 101 economics and learn capital efficient market theory and learn a little about “Global economy”. The inefficient in the global markets between US and China/Japan is directly related to the human resources. Both China and Japan have an edge against US ---China has far lower labor cost (hence high manufacture productivity) and Japan has higher-tech edged efficient manufacture. Those are true cause of winning in the global markets.

[@jpzhouutube]

BS, according to your theory, any country can buy US bonds by just print own money. LOL.

[@jpzhouutube]

@khanacademy If so, any country can be rich by devaluing its currency! False impression you gave! Truth are..Say, product A can be made by both China and US. Chinese labor= $1/hr and American labor=20/hr. So chine wins. Now,say product B can only be produced in US (US wins). If demand A = demand B ($ wises),then trade balanced. When Chinese labor cost will be at $20/hr? until China GDP/capital close to US (equribrium)