off to the usa we go to study..more and more

[Yamaka]

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"US is in serious trouble and somebody sooner or later will upset the apple cart unless things are changed quite fast." Subbudu1 post 34.


Dear Subbudu Sir:

Yes, US has serious problems. But all can be fixed. All doable. Areas we need to focus are -

1. Our tax code is quite burdensome. It has to be simplified.

We need to raise revenue to about 19% of GDP for the federal Govt (another 19% is to be raised for the State and Local Govt = a total of about 40% of the GDP in the hands of the public sector, leaving a good 60% in the Private Sector, which is healthy, IMO).

Since Obama came to the WH, we are collecting only about 15% of the GDP while spending about 25% of the GDP due to persistent Recession which started in Sep 2008. This is the huge deficit that adds to our Public Debt.

This Recession will end only when the economy adds about 300,000 jobs a month.

My suggestion is all those who make less than $47,000 (family of FOUR) need not pay any income tax (this is the current situation in the US) - others must pay a 10%, 20% and 30%, with many of the exemptions, deductions restricted, and capital gain and dividend incomes treated as normal regular income. The Estate tax of 30% or more after a deduction of $2 million must be levied.

Corporate tax needs to be simplified to collect much more than the $200 billions a year we collect today.. but if the MNCs create permanent jobs in the US, they must be given tax subsidy in terms of "employer payroll tax".

2. Our education is falling and failing. Only about 30% of the population has 4-year college degrees. This must be increased with emphasis on science and math education.

3. We must simplify our Immigration policies to attract young healthy talented people to immigrate. I suggest that ALL foreign students who get a PhD or Master Degree must be immediately given Green Cards via their graduation ceremonies... the accredited Universities can do this job... the students need not apply to the Immigration & Naturalization and wait and wait, at all.

4. Our politics is broken... the Political Parties must see that we are wasting plenty of time on mindless blather... the Leadership must whip their members to be productive and worry about Creating Good Jobs.. rather than Political Gamesmanship...

More later...


​

 

[zebra16]

May be I am dull, but how will China burning its USD bonds add to its external debts? Maximum it will reduce China's foreign assets, is it not? When China gets the USD bonds, it has already paid for those bonds.

1. External debt also includes "money owed to foreign governments, foreign individuals/entities" and not just government lending/borrowings to government entities or multilateral agencies like World Bank, IMF etc. Reference: External debt - Wikipedia, the free encyclopedia

2. It is my understanding (I cant recollect exactly where I read/heard, right away), except in case of government entities foreign currency assets and liabilities of "others" are "netted" for arriving at the external debt. If SBI maintains a current a/c balance of US $ 1M with Citi Bank and has overdraft of US $ 1M with Wells Fargo Bank, external debt of SBI will be treated as NIL (as also foreign currency balance of SBI)

3. If Citibank "goes under" (akin to burning to the treasury bills by China), the overdraft liability to Wells Fargo Bank will stand, and thus SBi"s and correspondingly India's external debt will rise by U S $ 1M.

4. After the nuclear tests in 1998, to off-set the sanctions imposed by Western countries, SBI on behalf of RBI/Government raised foreign moneys in the form of "Resurgent India Bonds" - which was an external debt. The proceeds were utilised to increase foreign currency reserves of India (which among others included U S treasury bills also). If the treasury bills were burnt, leaving only the liabilities under Resurgent India Bonds outstanding, naturally external debt will rise, although RBI/GoI may compensate SBI by paying in "rupees".

 

[zebra16]

May be I am dull, but how will China burning its USD bonds add to its external debts? Maximum it will reduce China's foreign assets, is it not? When China gets the USD bonds, it has already paid for those bonds.

A more simple explanation than msg # 52:

A U S based investor wants to invest US $ 1 M through FII route and wants to purchase BHEL shares. He sells his dollars to SBI and purchases BHEL shares from the rupee proceeds of the US dollars. SBI has no use for dollars and sells the same to RBI and get the rupee proceeds from it. RBI buys US treasury bills instead of maintaining idle dollar current account balance. India's foreign currency asset has gone up by US $ 1 M without apparent external debt.

After a year, the US investor disposes off his BHEL shares and wants conversion of rupees into US $. SBI does the needful and requests RBI to sell it (SBI) dollars. If the treasury bills had been "wasted" by RBI, RBI has no option but to utilise the line of credit provided by Fed Reserve and make payment in dollars to SBI by resorting to overdrawal from Fed Reserve. Thus, burning of U S treasury bills has resulted in increased external debt.

Of course, RBI can explain the mitigating circumstances under which it burnt the US treasury bills, and if Fed Reserve is satisfied and on furnishing of requisite indemnity will issue fresh treasury bills in lieu of the lost originals. May be Fed Reserve will insist that the undertaking should include a clause that in future treasury bills will not be burnt without a valid cause.

The overdraft with Fed Reserve can be extinguished by sale of the freshly issued treasury bills.

Much of china's treasury holdings are a result of FII/FDI investment of foreign investors in chinese markets

 

[subbudu1]

"US is in serious trouble and somebody sooner or later will upset the apple cart unless things are changed quite fast." Subbudu1 post 34.


Dear Subbudu Sir:

Yes, US has serious problems. But all can be fixed. All doable. Areas we need to focus are -

1. Our tax code is quite burdensome. It has to be simplified.

We need to raise revenue to about 19% of GDP for the federal Govt (another 19% is to be raised for the State and Local Govt = a total of about 40% of the GDP in the hands of the public sector, leaving a good 60% in the Private Sector, which is healthy, IMO).

Since Obama came to the WH, we are collecting only about 15% of the GDP while spending about 25% of the GDP due to persistent Recession which started in Sep 2008. This is the huge deficit that adds to our Public Debt.

This Recession will end only when the economy adds about 300,000 jobs a month.

My suggestion is all those who make less than $47,000 (family of FOUR) need not pay any income tax (this is the current situation in the US) - others must pay a 10%, 20% and 30%, with many of the exemptions, deductions restricted, and capital gain and dividend incomes treated as normal regular income. The Estate tax of 30% or more after a deduction of $2 million must be levied.

Corporate tax needs to be simplified to collect much more than the $200 billions a year we collect today.. but if the MNCs create permanent jobs in the US, they must be given tax subsidy in terms of "employer payroll tax".

2. Our education is falling and failing. Only about 30% of the population has 4-year college degrees. This must be increased with emphasis on science and math education.

3. We must simplify our Immigration policies to attract young healthy talented people to immigrate. I suggest that ALL foreign students who get a PhD or Master Degree must be immediately given Green Cards via their graduation ceremonies... the accredited Universities can do this job... the students need not apply to the Immigration & Naturalization and wait and wait, at all.

4. Our politics is broken... the Political Parties must see that we are wasting plenty of time on mindless blather... the Leadership must whip their members to be productive and worry about Creating Good Jobs.. rather than Political Gamesmanship...

More later...


​

I would like US to go steady. But I am having difficulties with your arguments.

You said recession will end when 300000 jobs are added every month. How is that possible. Let us assume that the job requirements of Business is not going to change drastically. Only thing that can be done is shift offshore works back to US. If that is done , can the Business maintain profitability. Today the Business are just about managing to survive. If you shift a work back, you can create a new job. But that will increase your cost. Hence with every new job added greater revenue needs to be gained by Business.

If i import a new person into USA to fulfill the work, will my jobless citizens get the job. The more smart solution is to gear up the local population to take up the roles or bring down the quality level of the job. If you decide to gear up the local citizens they still will have to produce more output than offshore personnel to prevent loss in profit. In otherwords onsite personnel must toil more than the offshore personnel. This means quality of life is affected. You cannot drop out of office at 6 PM even if you need time for your child. That means national sacrifice.

It is ideal talk and it will not happen in any near future. USA has one of the best education systems, to improve it much more than that within 5-10 years is no joke at all. It calls for lot of hardwork and dedication and moderateness in life. Such a sudden change is impossible anywhere unless people have to struggle for food like in the developing countries. If the situation does not reach that level the average citizen will not wake up. So you see Yamaka that your high-achieving children will remain a role model and not a norm in the society.

Corporate tax needs to be simplified to collect much more than the $200 billions a year we collect today.. but if the MNCs create permanent jobs in the US, they must be given tax subsidy in terms of "employer payroll tax".

In a failing economy how do you plan to collect more tax. Tax from whom?
If you are hoping new wealth will be generated by more innovation. How many will buy a product. Are consumers in USA sufficient as a customer?
If you plan to sell abroad, apart from a few elite audience how many will buy. Even if there are a few such classical technologies how many can compete against the limited paypacket of individuals.Though my earnings are much more in India, I keep only a 2000 Rs phone. That is my asian psychology.

So yes America can be repaired if people in USA decide to go on a national sacrifice willing to do double the work that is done offshore. But I am not sure. I hear of even call centre boys and girls in India who are spending 12-15 hours a day. If the mindset of americans becomes like the chineese they will be too obsessed with work and forget to spend time in luxury. Forget India, we know what the chineese are doing. The ants I think will have the last laugh even though grasshoppers may have a few enjoyable summers.

 

[sangom]

A more simple explanation than msg # 52:

A U S based investor wants to invest US $ 1 M through FII route and wants to purchase BHEL shares. He sells his dollars to SBI and purchases BHEL shares from the rupee proceeds of the US dollars. SBI has no use for dollars and sells the same to RBI and get the rupee proceeds from it. RBI buys US treasury bills instead of maintaining idle dollar current account balance. India's foreign currency asset has gone up by US $ 1 M without apparent external debt.

After a year, the US investor disposes off his BHEL shares and wants conversion of rupees into US $. SBI does the needful and requests RBI to sell it (SBI) dollars. If the treasury bills had been "wasted" by RBI, RBI has no option but to utilise the line of credit provided by Fed Reserve and make payment in dollars to SBI by resorting to overdrawal from Fed Reserve. Thus, burning of U S treasury bills has resulted in increased external debt.

Of course, RBI can explain the mitigating circumstances under which it burnt the US treasury bills, and if Fed Reserve is satisfied and on furnishing of requisite indemnity will issue fresh treasury bills in lieu of the lost originals. May be Fed Reserve will insist that the undertaking should include a clause that in future treasury bills will not be burnt without a valid cause.

The overdraft with Fed Reserve can be extinguished by sale of the freshly issued treasury bills.

Much of china's treasury holdings are a result of FII/FDI investment of foreign investors in chinese markets

Shri Zebra,

My understanding of Chinese holdings of USTBs, how China gets such TBs, etc., are very much different from the very highly simplistic scenario given above. US imports a huge quantity of manufactured consumotion goods, tools, etc., from mainland China, for the net payment (after setting off US exports to China) for which, USTBs are obtained by the Chinese exporters or the Central Bank of China at the final stage.

TBs are issued not only by US but by UK and following the British legacy, the Indian Govt., and many more countries. These treasury bills are IOUs of the respective govts. But they differ from currency in that mere passing from one hand to the next does not pass on the purchasing power, as is the case with currency.

The USTBs held by China or anyone else are, thus, IOUs of US govt (or its central bank) and are promissory notes, and hence assets in the hands of the holders and debts for the issuers. China has reportedly divested significant portion of its USTB holdings in the recent past. That means China has found it wise not to keep its foreign exchange holdings in the form of USTBs.

If on an imaginary note, you happen to possess IOUs signed by me and decide to burn those IOUs, you will be the loser and I the gainer. Same should hold true for China burning its USTBs or RBI, in you example, burning the USTBs. In both cases US will have the last laugh, so to say.

Investing in Chinese securities, stocks and shares is not as easy as you seem to imagine. Microsoft, Intel, etc., might "invest" in China but FII/FDI investments in China are not as simple and encouraged as we do in India. In case you have any reliable statistics, please do furnish.

Given below are some remarks about Chinese stocks:—

"investments in China are typically not publicly traded stocks; investments take the form of private loans and private equity and you need to be there, in China, Hong Kong, Macao or Taiwan, to truly invest in the way most people define the word "investment." Individual, publicly traded China stocks should not be considered buy and hold investments. They are trading stocks. If you don't take that attitude, you may be in for some frustration.
The second most important thing I can stress is that the infrastructure of stock fraud is highly developed in the "Greater China" region. Stocks that trade on European and American exchanges are manipulated through criminal activity that takes place among foreign nationals living outside the jurisdictions of the markets where the exchanges reside. Although a supervisory agency like the SEC could prosecute and try to extradite the fraudsters, I've never seen it happen. High insider ownership is sometimes an invitation for fraud with small cap Chinese stocks. A U.S. listing and analyst coverage are no protection."

Straight Talk On Chinese Stocks - Forbes.com

The Chinese FDI/FII are unaccounted or undeclared income of Chinese entities which are illegally transferred abroad and then brought back to China as FDI/FII (FIIs are practically nil because it will leave some trail.). Indians are now become adept in following the Chinese in this.

 

[sangom]

Dear Sangom:

1. I am for managed trade with China and ALL other nations - my only objection is the PERSISTENT trade deficit with anyone nation, now like China. In my view and of many others, China is a TRADE MANIPULATOR via Currency Manipulation. This must stop immediately; I believe the anti-China Trade Bill in the Congress will set the stage for a quick remedy.

Shri Yamaka,

US too is a manipulator in very many ways. So, China is perhaps nature's answer to the US' manipulations!

2. Another place we have persistent trade deficit is with OPEC - US must expand its oil exploration on shore and off shore - with an eye on clean environment, by using modern technology - to minimize the petro $ going to OPEC. Clean energy technologies will help a lot. And US must use public transportation as much as possible to cut down excessive consumption of fossil fuels.

I am of the considered opinion that all talk about fossil fuel in US territory is just to keep the US population in their smug disposition and to engender the "feel good" psychology. Otherwise why should the oil from Iraq, and now Libya be targetted at such catastrophic costs to the very nation i.e., US?

3. I am afraid your calculation with export and import has serious error. As per Bond Vigilantes of the World (the real Policemen of the world in economic sense), what's needed is technological and GDP growth, stable Govt and robust political process and strong entrepreunerial culture to borrow any amount of money from them...trade deficit of $1.3 trillions in an economy of $14.9 trillion is quite low and manageable. Because of this, you know how popular US Treasuries are these days... 10 y T yields at about 2.5% or less, which means the Bond Vigilantes are willing and able to finance the US with very cheap money.

You may compare and contrast the 10 Y T yields with other countries like Japan, Germany, UK, India, China, Brazil etc.. to get a comparative evaluation in the eyes of the Bong Vigilantes! The picture of US is quite good there.

You may ask why to borrow any money at all from anybody? But, if you can borrow very cheap money long term AND you can refinance it anytime, this will not hurt your life style or your kids life style one bit. Instead, it could for ever improve your life style, which may look very weird to "conservative thinkers". But it is fine in New Economics! Lol

Where's the problem?

The bond vigilantes seem to have disappeared just like rats in a sinking ship. Kindly read this.

 

[Yamaka]

Dear Subbudu Sir:

My response in bold letters below:

I would like US to go steady. But I am having difficulties with your arguments.

You said recession will end when 300000 jobs are added every month. How is that possible. Let us assume that the job requirements of Business is not going to change drastically. Only thing that can be done is shift offshore works back to US. If that is done , can the Business maintain profitability. Today the Business are just about managing to survive. If you shift a work back, you can create a new job. But that will increase your cost. Hence with every new job added greater revenue needs to be gained by Business.

Please recall what happened during 1992-2000 during Clinton Administration. He slightly increased the tax rate to compensate a bit for the problems created by the previous WH. Clinton produced nearly 22 million jobs and the jobless rate plummeted to about 4.5%; there was the budget surplus which reduced part of our debt. In the recent memory, that was the Golden Era.. Can't we go back to that Era? Yes, we can if our private sector adds jobs w/o hoarding their profits (see below).

Right now, from data in Wall Street Journal, our companies are doing good business and the projected 12 month earnings per share of S&P 500 is about $101, a record profit...and they have aggregate earnings of $2 trillions stashed away to be given out as dividend or to be re-invested in the companies. They do neither... the money is siting idle as cash somewhere. Why? They say "future condition is very cloudy; what if we go into double recession and the aggregate demand is falling?" It's very funny, most of these people are "Supply Siders" and the worry about aggregate demand! As Schultz of Star Bucks says the private companies must come forward to proactively work towards creating new jobs which will create aggregate demand which will jump start the economic engine... I charge that private companies are negligent here. They have a role to play, which they refuse to do for perhaps partisan politics.. this would be suicidal for them!

Our MNCs have parked profits of $1.5 trillions offshore... I suggest that we create some tax incentives for them to bring that money home to create jobs.

If i import a new person into USA to fulfill the work, will my jobless citizens get the job. The more smart solution is to gear up the local population to take up the roles or bring down the quality level of the job. If you decide to gear up the local citizens they still will have to produce more output than offshore personnel to prevent loss in profit. In otherwords onsite personnel must toil more than the offshore personnel. This means quality of life is affected. You cannot drop out of office at 6 PM even if you need time for your child. That means national sacrifice.

It is ideal talk and it will not happen in any near future. USA has one of the best education systems, to improve it much more than that within 5-10 years is no joke at all. It calls for lot of hardwork and dedication and moderateness in life. Such a sudden change is impossible anywhere unless people have to struggle for food like in the developing countries. If the situation does not reach that level the average citizen will not wake up. So you see Yamaka that your high-achieving children will remain a role model and not a norm in the society.

I agree that it takes time to improve further our education system... While our University education is extremely good, our primary & secondary schools are not that good.. we must improve the quality by giving vouchers to parents to take their kids to good performing schools.. we must improve the quality of teachers and pay them well, which will attract better teachers to the profession... Obama's Race to the Top is one good approach: He challenges School Districts to come up with better curriculum and teaching methods to improve school quality in terms of measurable results like SAT scores etc.

In a failing economy how do you plan to collect more tax. Tax from whom?
If you are hoping new wealth will be generated by more innovation. How many will buy a product. Are consumers in USA sufficient as a customer?
If you plan to sell abroad, apart from a few elite audience how many will buy. Even if there are a few such classical technologies how many can compete against the limited paypacket of individuals.Though my earnings are much more in India, I keep only a 2000 Rs phone. That is my asian psychology.

As per GDP growth, we are not in Recession. For me that's not enough... we must drive down the jobless rate...9% is double the "Normal" jobless rate of about 4.5%. Now as the economy slowly improves tax receipts are slowly improving but we accumulate lots of deficits and debt.

So yes America can be repaired if people in USA decide to go on a national sacrifice willing to do double the work that is done offshore. But I am not sure. I hear of even call centre boys and girls in India who are spending 12-15 hours a day. If the mindset of americans becomes like the chineese they will be too obsessed with work and forget to spend time in luxury. Forget India, we know what the chineese are doing. The ants I think will have the last laugh even though grasshoppers may have a few enjoyable summers.

Now, there is talk of our MNCs bringing back the jobs to the poorer States in the US like Oklohoma, Nevada etc. Let's wait and see how that goes.

Cheers.

 

[Yamaka]

"The bond vigilantes seem to have disappeared just like rats in a sinking ship. Kindly read this." - Sangom post 56

Dear Sangom:

I call the Bond Holders as Bong Vigilates jokingly... they are none other than the Capitalists (who saved a lot via simple savings, earnings and capital gains) who split their investments between Money Markets, Bonds and Stocks..

I consider these Bond People as Necessary Evils... you have to love them.. and hate them at the same time.

With their lent money they grease the wheels of world economy... creating jobs and making economies vibrant...

They hate INFLATION... they have a clean nose of smelling inflation even afar! That's what the 10 Y Treasury yields reflect - which is the reason why I always look at that everyday...

So far, Bond People have given good marks for the US economy.. they are willing to lend trillions of dollars very cheap...

That's good for America, so far...

Wait and watch.



​

 

[Yamaka]

On Creating Jobs and Growing the Economy –

In the US nearly 20% of the labor force is in anguish (9% totally unemployed and about 11% are under-employed in a labor force of about 150 million, about half of the total population). About 12% of the population is in poverty as defined by the Federal Poverty Level (about $24,000 per year for a family of four).

Comparable figures in India is hard to get – while the people in engineering, IT and BPO are doing very well, all others are in anguish; most are under-employed. Nearly 75% of the population can’t afford to eat like the inmates in Tihar jail, where it costs about Rs. 150 per day to feed them (Dinamani article in 2011). This figure is close to what Tendulkar Commission reported as the FPL recently: Rs. 4800 per person per month. Few optimists say the poverty level in India is not that bad in India, but closer to 35%. I believe the figures of Tendulkar Commission (that's 75% of the total population - 900 million Indians, mind you). This must anger ALL people, including the patriots and the Religious zealots...

Then how to create jobs and grow the economy?

I am not interested in seeing the GDP numbers (about 2% in the US and about 8% in India)… I want to see how many thousand jobs, reasonably good jobs with benefits - the economy creates every month… our target is about 300,000 per month to accommodate all those who enter the labor force in the US. People in the Forum may write about the comparable numbers needed for India.

WE need to expand the size of the business class – the entrepre’ner class: In the US nearly 10% of the population is in this class most whom work for themselves (about 24 millions) and about 6 millions hire 1 -100 employees and the rest are the very large companies, including the MNCs who don’t create much jobs every year.

We need to simplify the govt/city regulations and the tax codes to enable this entrepre’ners to grow in number. This is the best way to add jobs.

This is what President Obama must focus. He has a Chief of Staff – Bill Daley – from the Corporate World. He must kick his butt to find out what the entrepre’ner class want from his Administration.

More later..

 

[kunjuppu]

y, nara, sangom,

afaik, the only criteria for banks to lend money, is your ability to pay the interest, and have some assets to back up the loan.

i think the same is happening to usa and china. china buys usa bonds, 'confident' it will not be defaulted on interest payments (the currency presses are working overtime for this). usa will not disappear off the face of the earth. china might make the same mistake the japanese made in the 1980s, buying prime nyc property, only to see all their values drop, and sell them back to americans.

there was a fear once that the japanese will buy all usa studios as complementing the japanese hardware innovations. except columbia which sold to sony, none of the others were taken over.

tough to predict the future. strange the dollar is back as favourite, inspite of the usa economic mess. guess, there is still no other alternative. though it might not be a bad idea to buy some yuans now.

 

[gushy0202]

So China is leading even here in the list... But we are good in English and communications when compared to China right...

 

[gushy0202]

Why im seeing two underlines in the post i make, some words get underlined automatically but i did not do them.....
Should i edit my post again?

 

[Yamaka]

On Bond Market and Perpetuity of Countries and Corporations -

Many of us are averse about loan and debt. High Debt Countries are looked down upon... it may not be prudent, IMO.

Although I carry multiple Credit Cards (about 8) and use them for most of my purchases, I pay them all on time, not paying a penny as interest in the past 32 years ( a fiscal conservative ha.. ha).. There are about 30% of the US households doing this. Consequently, our Credit Score is very high.. so far so good.

But 70% of the households pay 18 -25% interest yearly.. likewise, most Corporations and Countries are borrowing money in the Bond Market. The interest rate varies between 2% - 15% a year.

Legally speaking Corporations and Countries are forever... for perpetuity.

They can borrow and pay the interest or coupon on time, and REFINANCE the principal when it is due.. this way any DEBT can be on the books forever...

Is this good or bad?

It depends on WHY Corporations and Countries borrow?

Corporations believe that they can earn MORE than the interest they pay on the borrowed money...

Countries believe that Debt Financing is BETTER than taxing the population...

So, where's the problem?

 

[zebra16]

Many of us are averse about loan and debt. High Debt Countries are looked down upon... it may not be prudent, IMO.

Just making a bland statement that "it(looking down upon....) may not be prudent" does not mean anything. Please substantiate, how it is prudent or otherwise to borrow.

But 70% of the households pay 18 -25% interest yearly.. likewise, most Corporations and Countries are borrowing money in the Bond Market. The interest rate varies between 2% - 15% a year.

Dont you see the greed of corporate bankers here? Especially when they borrow at near zero rates from Fed and have "yen carry trades" and fleece the poor credit rated individuals at 18-25% (I think with the effect of compounding interest rates, the effective rates will be still higher.

Countries believe that Debt Financing is BETTER than taxing the population...

So, where's the problem?

The problem lies in leaving the future generations to pay the interest on the borrowings (in the past) in addition to the taxes. The problem gets confounded when no assets are created out of the borrowings

 

[Yamaka]

My response in bold letters below:

Just making a bland statement that "it(looking down upon....) may not be prudent" does not mean anything. Please substantiate, how it is prudent or otherwise to borrow.

I have given you below the reasons why it would be imprudent to look down upon them!

The bottomline is What you do with the borrowed funds? Simple consumption or for "long term investments"? Home buyers borrow money for 15 or 30 years; students get loan for life... why? They consider it as investments, and not simple consumption!



Dont you see the greed of corporate bankers here? Especially when they borrow at near zero rates from Fed and have "yen carry trades" and fleece the poor credit rated individuals at 18-25% (I think with the effect of compounding interest rates, the effective rates will be still higher.

Yes, it may look like banks are very greedy... but they claim that the defualt/bankruptcy rate is high... that's why they need to collect high interest rate to compensate for the loss elsewhere!

In the US, Dept of Education levies 6.8% interest on PLUS and Student Loans... when their cost is about 2-3% to raise funds in the open market... the reason is the same high default rate, I believe.

But did you ask why Citi and B of A are in such a big trouble? What happened to WaMu, Vachovia and Merrill Lynch?


The problem lies in leaving the future generations to pay the interest on the borrowings (in the past) in addition to the taxes. The problem gets confounded when no assets are created out of the borrowings

This is a myth. The future generation will inherit ALL assets, NOT just the liabilities only.. as of today, as I wrote elsewhere the NET assets of the US is about 6 trillion dollars (after taking into a/c the present value of ALL liabilities). Plus the next generation will inherit all the patents and intellectual properties.

If I die normally after my wife, my kids will easily inherit a net asset of 1-2 million dollars!

So where's the problem?

 

[zebra16]

Shri Zebra,

My understanding of Chinese holdings of USTBs, how China gets such TBs, etc., are very much different from the very highly simplistic scenario given above. US imports a huge quantity of manufactured consumotion goods, tools, etc., from mainland China, for the net payment (after setting off US exports to China) for which, USTBs are obtained by the Chinese exporters or the Central Bank of China at the final stage.

My msg # 53 dealt only with the issue of how disposing of US treasury bills without getting value will result in increased external borrowings

If on an imaginary note, you happen to possess IOUs signed by me and decide to burn those IOUs, you will be the loser and I the gainer. Same should hold true for China burning its USTBs or RBI, in you example, burning the USTBs. In both cases US will have the last laugh, so to say.

That is what I replied to Mr. Kunjuppu when he suggested that China may dump US treasury bills, if it can bring the US to its knees

 

[gushy0202]

This is very intelligent and thought provoking discussing thread and has food for thought for younger generation like us.

 

[zebra16]

Yamaka:I have given you below the reasons why it would be imprudent to look down upon them!

The bottomline is What you do with the borrowed funds? Simple consumption or for "long term investments"? Home buyers borrow money for 15 or 30 years; students get loan for life... why? They consider it as investments, and not simple consumption!


Me:The basic economic criterion is “not what to do with borrowed funds”, but borrowing to finance a “need”. As long as the borrowing creates an “asset” which will appreciate more in value than interest outgo on loan, it makes economic sense. But then, there are limits upto which an asset class may appreciate, and just pumping in more money will only create asset bubble, like the mortgage crisis or the bust-japanese real estate of the last century.


Yamaka: Yes, it may look like banks are very greedy... but they claim that the defualt/bankruptcy rate is high... that's why they need to collect high interest rate to compensate for the loss elsewhere!

Me: It makes bad economics sense to penalize “good quality borrower” by charging exhorbitant interest to recoup the losses of delinquencies. This also flies in the face of “efficient capital markets”

Yamaka: In the US, Dept of Education levies 6.8% interest on PLUS and Student Loans... when their cost is about 2-3% to raise funds in the open market... the reason is the same high default rate, I believe

Me: I think you are wrong in your belief. The differential of 4-5% is to cover overhead charges. But my original question was why were the bankers charging 18-25% for loans though the banks are funded by Fed at nearly 0%. I am not talking about the measly 4-5% interest differential.

Yamaka: But did you ask why Citi and B of A are in such a big trouble? What happened to WaMu, Vachovia and Merrill Lynch?

Me: Simply bad governance and one-upmanship in marketing and re-marketing “exotic derivative products”. With dirt cheap funds available, they were on the lookout for borrowers, whether good or bad.

Yamaka: This is a myth. The future generation will inherit ALL assets, NOT just the liabilities only.. as of today, as I wrote elsewhere the NET assets of the US is about 6 trillion dollars (after taking into a/c the present value of ALL liabilities). Plus the next generation will inherit all the patents and intellectual properties.

Me: Please re-do your maths. Chunk of the treasury bills held by China represents “consumption” and not debts arising out of “asset creation”. By continuing the present practice, you are reducing the net assets of the future generation.

Patents and intellectual properties – they are valuable only when the design and technology is used. Remember “pager services” just before the telecom boom? What is their value today? It does not take much time for new generation technologies to over run the present technologies.

Yamaka:If I die normally after my wife, my kids will easily inherit a net asset of 1-2 million dollars!

So where's the problem?

Me: Problem is you are mixing up your personal finances with public finances

 

[Haridasa Siva]

The price of schooling has indeed been rising at a breakneck pace. Tuition and fees at U.S. colleges and universities climbed 439% in current (unadjusted for inflation) dollars from 1982 to 2007, according to a 2008 report from the National Center for Public Policy and Higher Education in San Jose, Calif. That topped the 251% rise in U.S. health care costs over the same stretch, and was nearly three times higher than the growth of median family income. While the $50,000-plus sticker price of elite private colleges and universities has gained headlines, the increases have hit public schools that enroll some three-quarters of all U.S. undergraduates particularly hard. Cash-strapped states are driving the increases by slashing funding, leaving students to foot more of the bill. Tuition and fees have more than doubled at the University of California since 2005, for example, igniting student protests at the Berkeley campus this fall. Along with soaring costs have come growing debt loads. On average, U.S. college seniors who graduated in 2009 carried $24,000 in student loan debt, up 6% from the previous year, according to the Institute for College Access & Success in Oakland, Calif. President Obama has announced plans to use his executive authority to institute an initiative to lower student loan payments for many borrowers, offer additional consolidation options and shrink the time period after which any remaining debt would be forgiven. Data collected by the Center for Labor Market Studies at Northeastern University show a drop in the share of graduates under the age of 25 who have jobs from 81% in 2000 to 74.4% in the period from October 2010 to March 2011. The share of recent graduates with jobs that require a college degree fell farther, from 59.7% in 2000 to 45.9%, indicating that some graduates have resorted to positions like waiting on tables or parking cars. The basic problem we have is uncertainty about the job markets in the future. That argues for the ability to learn and adapt and pick up new skills, and that would seem to argue for going to college. If education is vital to success in the global economy, other countries appear to be gaining on Uncle Sam. The United State ranks seventh out of 29 advanced countries in the percentage of young adults enrolled in college, and 15th in terms of the number of certificates and degrees awarded per 100 enrollees, according to the National Center for Public Policy and Education. The stormy debate over whether college is a good investment is unlikely to blow over anytime soon. Agreement is elusive on whether schools are producing enough graduates with associate and bachelor's degree to meet future occupational needs. While the Georgetown Center on Education and the Workforce says that the United States will fall short by three million graduates by 2018, other researchers dispute the methodology behind this projection and see no shortage ahead. But few doubt that some type of post-secondary education is vital in today's economy. It's our obligation to see that there's a path for everyone. This post is extracted from an International publication with the sole objective of sharing it with the members of this forum.

 

[Yamaka]

Yamaka:I have given you below the reasons why it would be imprudent to look down upon them!

The bottomline is What you do with the borrowed funds? Simple consumption or for "long term investments"? Home buyers borrow money for 15 or 30 years; students get loan for life... why? They consider it as investments, and not simple consumption!


Me:The basic economic criterion is “not what to do with borrowed funds”, but borrowing to finance a “need”. As long as the borrowing creates an “asset” which will appreciate more in value than interest outgo on loan, it makes economic sense. But then, there are limits upto which an asset class may appreciate, and just pumping in more money will only create asset bubble, like the mortgage crisis or the bust-japanese real estate of the last century.


Yamaka: Yes, it may look like banks are very greedy... but they claim that the defualt/bankruptcy rate is high... that's why they need to collect high interest rate to compensate for the loss elsewhere!

Me: It makes bad economics sense to penalize “good quality borrower” by charging exhorbitant interest to recoup the losses of delinquencies. This also flies in the face of “efficient capital markets”

Yamaka: In the US, Dept of Education levies 6.8% interest on PLUS and Student Loans... when their cost is about 2-3% to raise funds in the open market... the reason is the same high default rate, I believe

Me: I think you are wrong in your belief. The differential of 4-5% is to cover overhead charges. But my original question was why were the bankers charging 18-25% for loans though the banks are funded by Fed at nearly 0%. I am not talking about the measly 4-5% interest differential.

Yamaka: But did you ask why Citi and B of A are in such a big trouble? What happened to WaMu, Vachovia and Merrill Lynch?

Me: Simply bad governance and one-upmanship in marketing and re-marketing “exotic derivative products”. With dirt cheap funds available, they were on the lookout for borrowers, whether good or bad.

Yamaka: This is a myth. The future generation will inherit ALL assets, NOT just the liabilities only.. as of today, as I wrote elsewhere the NET assets of the US is about 6 trillion dollars (after taking into a/c the present value of ALL liabilities). Plus the next generation will inherit all the patents and intellectual properties.

Me: Please re-do your maths. Chunk of the treasury bills held by China represents “consumption” and not debts arising out of “asset creation”. By continuing the present practice, you are reducing the net assets of the future generation.

Patents and intellectual properties – they are valuable only when the design and technology is used. Remember “pager services” just before the telecom boom? What is their value today? It does not take much time for new generation technologies to over run the present technologies.

Yamaka:If I die normally after my wife, my kids will easily inherit a net asset of 1-2 million dollars!

So where's the problem?

Me: Problem is you are mixing up your personal finances with public finances

1. We have at least a dozen very large banks, besides very many Regional Banks... People have CHOICES whether to borrow any at all, and from whom..Efficient Market Hypothesis stresses about competition in the market place.. we have it in banking.

2. The higher interest rate reflects both their overhead charges AND the potential default rates.

3. As per Treasury data: The total ASSETS of the US (including small businesses, corporations and households) is $78.33 Trillions. When PIMCO (Worlds largest Bond Trader) calculated the present value of ALL liabilities including current debt to foreign nationals like China, Japan, Europe - $4.7 Trillions total -it amounts to $72 Trillions.. So I believe the US is very solvent long term by at least $6 trillions.

China holding $1.2 trillions US T bonds is no big deal, in the larger scheme of things, IMO. They can sell all the bonds in NY and get the current value any day M-F 9-3 pm ET. They know it very well, except a few pro-Chinese thinkers!

4. US holds nearly 60% all patents in the world, most are current and having the Rights for 20 years going forward...plus the future generation inherits all our Military, Universities and the Know-How which is the envy of the world...

5. Like myself, there are 30% of Americans who hold enormous wealth to be transferred to their younger generation.

Where's the problem?

ps. Real Estate bubble is ready to pop both in China and India...The next Global Recession will be because of the Euro Bust and/or RE Bust in China and India..from the RE bust these two high growth countries will take ages to come back to normal growth... my prediction.

Watch out....

 

[Haridasa Siva]

My post no.69:

I posted it in paragraphs but it appears without spacing. Unfortunately (and strangely), I am not able to edit it either. My apologies for the inconvenience in reading.

 

[Nara]

Off you go to USA, make your money, hook or crook, get caught, go to jail. Well the story has some interesting twists, one we all are familiar with, the perils of stereo-typing.

Based on the case of Rajarathnam, I don't want to be labeled as an immigrant unaware of the rigors of the U.S. law and would pursue success and money at any cost. Yet that is what I am getting labeled.

Please read these two articles:

Newsweek profile of Rajaratnam -- makes the stereotyping statement
Huffington Post response -- criticizes the Newsweek article

Cheers!

 

[Haridasa Siva]

5. Like myself, there are 30% of Americans who hold enormous wealth to be transferred to their younger generation.

Where's the problem?

ps. Real Estate bubble is ready to pop both in China and India...The next Global Recession will be because of the Euro Bust and/or RE Bust in China and India..from the RE bust these two high growth countries will take ages to come back to normal growth... my prediction.

Watch out....

1. I wonder whether USD 1-2m constitutes "enormous wealth".
2. How is Real Estate pricing in China? I have an idea about India. How would you compare the RE situation in India/China with that of U.S.? I would appreciate your comments. Thanks in advance.

 

[prasad1]

Nara's post#72 Makes a strong point. The Asian Immigrant in US are the most law abiding people. There are bad apples in every community.

 

[sangom]

With so much of heated (?) exchanges going on about which economy - US, China or India - will crash, it may be worthwhile to note the under-noted excerpts and also read the complete web page:

"It has also been suggested that instead of just using dollars to pay off the U.S. national debt, we could use the assets of the U.S. government to pay it off.

That is rather extreme, but let us consider that for a moment.

That total value of all physical assets in the United States, both publicly and privately owned, is somewhere in the neighborhood of 45 to 50 trillion dollars. Of course the idea of the U.S. government "owning" every single asset of the American people is repugnant to our entire way of life, but let's assume that for a moment.

According to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars. This amount is more than the entire GDP of the whole world.

In fact, there are other authors who have written that the actual figure for the future liabilities of the U.S. government should be much higher, but let's be conservative and go with 65 trillion for now.

So, if the U.S. government took control of all physical assets in the United States and sold them off, it could not even make enough money to pay for everything that the U.S. government is already on the hook for."
(http://theeconomiccollapseblog.com/archives/it-is-now-mathematically-impossible-to-pay-off-the-u-s-national-debt)
The 2010 Financial Report of the US govt concludes as under:

The United States took a potentially significant step towards fiscal sustainability in 2010 by reforming its system of health insurance. The legislated changes for Medicare, Medicaid, and other health coverage hold the prospect of lowering the long-term growth trend for future health care costs and significantly reducing the long-term fiscal gap. But even with the new law, the projections discussed above indicate that, under current policies and the assumptions used in this report, the debt-to-GDP ratio will continually increase over the next 75 years and beyond,
which means current policies are not sustainable. As indicated earlier, the longer policy action to avert these trends is delayed, the larger are the projected revenue increases and/or spending decreases necessary to reach a target debtto-
GDP ratio. These projections, however, are neither forecasts nor predictions. They are presented here to provide a foundation upon which readers can form their own conclusions about fiscal sustainability.

What more certification is required for the sustainability of the US economy!