debts or loans

The island of Manhattan, whence the term is de...

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Thanks to George W. Bush, China is already in a position of significant financial leverage over the United States.

Now it wants to put itself in a position of leverage over Europe as well? That would give it too much influence, in the guise of ‘aiding world stability’. Where was this ‘aid to world stability’ when it was slow to close its borders and airports back when SARS was spreading like wild-fire within its borders?

China enabled cheap commodity so people could buy things with less money, so they got more money to spend, and what did they spend the extra money on? Houses! And the house price went through the roof. The Fed could have removed the excessive money with higher interest rate but they have other agenda. When Wall St fucked up the housing market with derivative, the money supply suddenly was withdrawn and the housing market collapsed.

and now China decided to invest in the Greek economy, greatly helping Greece who is deeply in debt. But Anyone can buy bonds, they are investments. At most we could call them long term loans, but no one actually buys debt. well besides things like banks buying other banks loans or housing derivatives but countries don’t buy each others debt.

but I reckon the distinction is useful, though, when you consider even financial basics. First, when you’re looking at raising capital, your choices are through direct financing (loans) or indirect financing (selling securities). If you’re taking a direct loan from a bank or some other financial institution, you’re borrowing from them. Alternatively, if you’re a financial institution, you’re lending money to some organisation (ie – a country, corporation, et cetera). In this case of direct finance, yes, we would say that it is a case of lending/borrowing.

Debt financing has similar principles, but is a fundamentally different action. It involves an organisation issuing bonds and like-securities to some market. The legal and investment repercussions (liquidity, failure to pay, contractual obligations, et cetera) of this are wholly different than simply borrowing from a financial institution.

They are not the same thing, so why would they use the same terms? Using the word debt as a form of indirect financing is pretty standard, well understood, and useful. There would orders more confusion in finance if the suggestion of using the word “loans” took hold and everybody used the same terms for direct and indirect finance procedures.

also China’s done a pretty smart thing here by spending that money on investments, any investments, really. As long as it has the potential to return a profit so when they finally let that currency go to it’s natural value and that currency stream weakens, they can supplement it with the money from these investments.

Official photograph portrait of former U.S. Pr...

Image via Wikipedia

That also means that China has no interest in bankrupting America or Greece, for example, because that would mean they’d get no return on that investment.

Unfortunately for China’s lower classes, this means that there will be a lot less work going around. The Chinese government fears the power of the lower classes, so they try to keep them working as much as possible so they can’t organize and demonstrate. If they suddenly had nothing to do, then there might be another Tiananmen Square situation.


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