Simple economic question: If government is heavily in debt, but has never had trade..

[Norman]

So I have been pondering this question a bit, and I mean the answer is probably very simple, but I just want clarification on this before I go sputing out nonsense, like you see everyday in mainstream media

The question is: If government is heavily in debt, but has never had trade deficits, does that mean the citizens of the country own all the debt?

It's really simple but DAMN, I can't think this through.

And also if someone could tell me a bit about the currency exchange. So if a foreign investor invests to your country (they can use different or same money really), does that mean they actually give the money to some OTHER investor in the other country which then invests to the government bonds and so on. Again this is really simple but just can't get my head around.

Yeah I need to read a bit more, but maybe this resulting conversion will help me. Either way thanks a lot to the guy with the answer =).

 

[loosecannon]

Foreign exchange market - Wikipedia, the free encyclopedia

 

[Norman]

Link

Thanks, so the answer would be:

YES, that means the citizens of the country own all the debt. (unless the government has stacks of other governments paper sitting around). And that is not dependent if they use the same currency or not.

Is this right?

Anyway thanks =). I had to edit the quote, cause I can't post links (yet).

 

[loosecannon]

I think you nailed it.

 

[CrusaderFrank]

What does a trade deficit have to do with who buys the debt?

 

[loosecannon]

don't go there

 

[Norman]

don't go there

This has been discussed before?

 

[8537]

What does a trade deficit have to do with who buys the debt?

Ya need dollars to buy dollar-denominated assets.

And if you have billions and billions of dollars in your accounts, you need somewhere to park them.

 

[Samson]

don't go there

This has been discussed before?

US Message Board - Political Discussion Forum - Search Forums

 

[CrusaderFrank]

What does a trade deficit have to do with who buys the debt?

Ya need dollars to buy dollar-denominated assets.

And if you have billions and billions of dollars in your accounts, you need somewhere to park them.

What does a trade deficit have to do with who buys the debt?

I can see if the question was "If the government ran a budget surplus and didn't need to issue debt..." but what does a trade deficit have to do with who buys the debt?

 

[CrusaderFrank]

No the citizens don't own the debt, the people and institutions that buy the debt own the debt.

Why is this so hard?

 

[Samson]

No the citizens don't own the debt, the people and institutions that buy the debt own the debt.

Why is this so hard?

Because Public Education doesn't understand Applied Finance

 

[loosecannon]

No the citizens don't own the debt, the people and institutions that buy the debt own the debt.

Why is this so hard?

Because you probably overly literalized his question. I assumed he meant who was responsible for the debt, not who owned the issued bonds.

 

[8537]

What does a trade deficit have to do with who buys the debt?

Ya need dollars to buy dollar-denominated assets.

And if you have billions and billions of dollars in your accounts, you need somewhere to park them.

What does a trade deficit have to do with who buys the debt?

Whoever buys the debt has to do so with dollars. The trade deficit puts dollars in the hands of people on the trade-surplus side, iow foreigners.

 

[CrusaderFrank]

Ya need dollars to buy dollar-denominated assets.

And if you have billions and billions of dollars in your accounts, you need somewhere to park them.

What does a trade deficit have to do with who buys the debt?

Whoever buys the debt has to do so with dollars. The trade deficit puts dollars in the hands of people on the trade-surplus side, iow foreigners.

Maybe someone can invent a market where currencies are traded every day?!

ZOMG!!!

What a great idea!

And so new too!

A market for currencies!

Who could ever dream up an idea like that?

Chinese can trade their currencies for dollars (that's the new and clever part) and then use the dollar to buy bonds!

I have to call my patent attorney to see if this works

BRB

 

[CrusaderFrank]

No the citizens don't own the debt, the people and institutions that buy the debt own the debt.

Why is this so hard?

Because you probably overly literalized his question. I assumed he meant who was responsible for the debt, not who owned the issued bonds.

Who is responsible?

Um, the issuer.

If its a US Government bond, then it's the US government.

If its a NYC bond, then its NY City.

 

[CrusaderFrank]

Fuckkkkkkkkkkkkkkkkkkkkkkkkk.

I'm housebroken, I mean heart broken, someone beat me to my new "Currency trading" idea.

Fuckkkkkkkkkkk I could have made a few buck on it.

It seems that every day there's at least a trillion of foreign currencies traded on various exchanges. No, I'll be OK, I just need some shrooms and absinthe

 

[Norman]

I just wanted to know this, because I live in scandinavia, and well I just watched a video where a politician says we should hyper inflate (which is nonsense in any case BUT).

Our country has always had trade surplus so, I wanted to know if our country as a whole owes stuff to other countries, as the government(and consumer) has pretty good pile of debt.

Like US for example has huge trade deficit and huge debt to china and some other countries.

There is small difference, because if you own your own debt, it means you got savings, if you don't... it could mean you are way more broke.


So for our country if europe would super inflate, our savings would be wiped and the other countries debt to us would be wiped. So obviously it's not a good deal for us at all.

 

[william the wie]

I just wanted to know this, because I live in scandinavia, and well I just watched a video where a politician says we should hyper inflate (which is nonsense in any case BUT).

Our country has always had trade surplus so, I wanted to know if our country as a whole owes stuff to other countries, as the government(and consumer) has pretty good pile of debt.

Like US for example has huge trade deficit and huge debt to china and some other countries.

There is small difference, because if you own your own debt, it means you got savings, if you don't... it could mean you are way more broke.


So for our country if europe would super inflate, our savings would be wiped and the other countries debt to us would be wiped. So obviously it's not a good deal for us at all.

You are not reporting something or else it has been misreported to you. X-M = Gs+ Cs +Bs. X=exports, M=imports, Gs= Government surplus, Cs= Consumer savings and Bs= retained earnings of businesses. X-M is also the trade surplus by definition.

 

[8537]

What does a trade deficit have to do with who buys the debt?

Whoever buys the debt has to do so with dollars. The trade deficit puts dollars in the hands of people on the trade-surplus side, iow foreigners.

Maybe someone can invent a market where currencies are traded every day?!

ZOMG!!!

What a great idea!

And so new too!

A market for currencies!

Who could ever dream up an idea like that?

Chinese can trade their currencies for dollars (that's the new and clever part) and then use the dollar to buy bonds!

I have to call my patent attorney to see if this works

BRB

Frank,

You should think first, then post. The Chinese hold currency reserves in...dollars! yes, Dollars.

The Chinese get our dollars in exchange for their goods.
The Chinese then have more dollars. They can't add to their reserves without inflating their own currency. They are left with these dollars and they can do a few things:

1. They can bury them under a rock.
2. They can buy other currencies. Which ones? Euros maybe. but...Buying euros with their excess dollars drives down the value of their own reserves.
3. They can buy dollar-denominated assets.
4. They can deposit the money in US banks.

The last two are quite popular, as you may have heard.

AND NOW!...Macro lesson 2:

Private saving finances domestic investment, the government deficit and the current account surplus.