T Nation

Who Pays for the War?

…i’ve wondered about this, but got no answer from our resident accountant.

Where is the money coming from that funds the war effort? Is it borrowed, or are you paying for it through your pensionplan?

Who is going to pay the interest on the massive debt Bush is running-up? Will you see an increase in interest-rates, higher inflation, lower wages and tax-increases?

What will be the consequences for the US economy in the long run?

Who pays? Hum…maybe China, Taiwan, South Corea, Saoudia Arabia, Japan…(US government bonds)

[quote]Franck wrote:
Who pays? Hum…maybe China, Taiwan, South Corea, Saoudia Arabia, Japan…(US government bonds)

Yes. China is one of the largest buyers of our government junk bonds.

In other words, we are fighting an expensive and interminable war using money borrowed at interest from our most formidable economic, ideological and military rival.

Money that we forked over to them in the first place in exchange for thousands of container loads full of cheap crap marked “Made in China”.

Contrary to the implication of the article, the Chinese are no fools.

[quote]Varqanir wrote:
Contrary to the implication of the article, the Chinese are no fools. [/quote]

But neither are we.

This is like cold war-era detente… instead of mutual assured destruction with bombs, we are using mutual assured destruction with bonds.

So everybody plays nice and nobody gets hurt. Simple.

[quote]lothario1132 wrote:
Varqanir wrote:
Contrary to the implication of the article, the Chinese are no fools.

But neither are we.

This is like cold war-era detente… instead of mutual assured destruction with bombs, we are using mutual assured destruction with bonds.

So everybody plays nice and nobody gets hurt. Simple.[/quote]

I seem to recall how that last detente ended. The Soviet Union went bankrupt and crumbled after fighting an extended, fruitless war against radical Islamists. Those silly Russians.

The Chinese have one huge advantage over us, and it is not the size of their armies, the strength of their air force, the robustness of their economy or the size of their precious metal reserves.

It is patience.

[quote]Varqanir wrote:
Franck wrote:
Who pays? Hum…maybe China, Taiwan, South Corea, Saoudia Arabia, Japan…(US government bonds)

Yes. China is one of the largest buyers of our government junk bonds.

In other words, we are fighting an expensive and interminable war using money borrowed at interest from our most formidable economic, ideological and military rival.

Money that we forked over to them in the first place in exchange for thousands of container loads full of cheap crap marked “Made in China”.

Contrary to the implication of the article, the Chinese are no fools. [/quote]

If all else fails the US will just devalue the $ in some way.

So what?

[quote]Varqanir wrote:
Yes. China is one of the largest buyers of our government junk bonds.[/quote]

When did US Treasuries drop into the high yield eschelon?

Do you even know what a junk bond is?

The rich.

JeffR

[quote]JeffR wrote:
The rich.

JeffR[/quote]

Why do you hate rich people?

[quote]Marmadogg wrote:
Varqanir wrote:
Yes. China is one of the largest buyers of our government junk bonds.

When did US Treasuries drop into the high yield eschelon?

Do you even know what a junk bond is?[/quote]

I gotta agree with my good friend Marmy here. Since when did bonds backed the full faith and credit of the United States government become such risky investments that they are upgraded to high-risk/high-yield status?

The U.S. is still the safest investment out there. It’s true - ask around.

[quote]rainjack wrote:
Since when did bonds backed the full faith and credit of the United States government become such risky investments that they are upgraded to high-risk/high-yield status?[/quote]

Um, high grade bonds are rated higher than high yield bonds(high yield = high interest rate).

Check out this link that explains bond ratings:

[quote]Marmadogg wrote:
rainjack wrote:
Since when did bonds backed the full faith and credit of the United States government become such risky investments that they are upgraded to high-risk/high-yield status?

Um, high grade bonds are rated higher than high yield bonds(high yield = high interest rate).

Check out this link that explains bond ratings:

http://www.investopedia.com/terms/b/bondrating.asp[/quote]

Sorry - I was thinking DOWN - and wrote UP. Uncle Michael would be pissed if he’d caught me making that mistake.

[quote]Marmadogg wrote:
JeffR wrote:
The rich.

JeffR

Why do you hate rich people?[/quote]

I don’t. But, they do pay the vast majority of taxes (aka…direct refutation of liberal socialist tendencies).

JeffR

[quote]JeffR wrote:
Marmadogg wrote:
JeffR wrote:
The rich.

JeffR

Why do you hate rich people?

I don’t. But, they do pay the vast majority of taxes (aka…direct refutation of liberal socialist tendencies).

JeffR

[/quote]

You are correct as AMT accounts for over 40 billion in tax revenue this year alone.

It sucks!

Okay, I admit. I played fast and loose with the term “junk bonds”. Certainly US Treasuries are not high-yield.

But as for risk…the term “backed by the full faith and credit of the United States government” bothers me a bit.

The foreign buyers of US bonds might indeed have faith now that the government will never default on its massive line of credit, but how long will that faith last?

Not too much longer, is my guess. Even now the major buyers of dollar-denominated instruments (China, Japan, and our oil-exporting friends in the Middle East) are beginning to shift out of dollars and into Euros or precious metals.

The Chinese can afford to diversify a bit, considering that their forex reserves are now somewhere in the neighborhood of 1 trillion dollars, or one-eighth of our national debt.

Lucky them.

[quote]Varqanir wrote:
But as for risk…the term “backed by the full faith and credit of the United States government” bothers me a bit.
[/quote]

Then don’t buy US bonds. They are the safest long term investment on earth, regardless your fears about the full faith and credit of the United States.

China will slow down. We will pick up. It is cyclical.

Can’t we just temporarily raise taxes because its wartime? It’s not gonna kill us and it’ll be over in a few years anyway how does it matter?

[quote]semper_fi wrote:
Can’t we just temporarily raise taxes because its wartime? It’s not gonna kill us and it’ll be over in a few years anyway how does it matter? [/quote]

There is no such thing as a “temporary tax increase”.

[quote]semper_fi wrote:
Can’t we just temporarily raise taxes because its wartime? It’s not gonna kill us and it’ll be over in a few years anyway how does it matter? [/quote]

Maybe you want to look up the taxes that were introduced to fight the Spanish-American War and WWI.

forget that shit.

i have to ask, ephram. who’s the chick in your avatar? it’s distracting…