US consumption – US production = Brazil’s annual output.
And Brazil is the 10th largest economy on planet earth! So, the Americans take on a debt that is close to the entire annual output of Brazil!! Is that a cause for concern? Well, some economists with twisted logic say no. But here is the deal with China:
- US buys goods from China; pays it with USD
- China has money; US has goods (cheap ones)
- China puts money back in US Treasury bonds; US gives promise to pay later and pays for its debt by that IOU.
- The Grand kids of those who keep buying stuff will pay for it.
btw, where do you think these goods paid by national debt end up? In Storage!! US has twice the storage vs Europe per capita!
Where will this all end?
Well, the rate at which China buys Treasury paper from US has to equal the debt growth rate that US generates every year. Even if China was to just buy the same amount of Treasury paper from US next year as it did in 2007.. there will be a HUGE shortfall.. and no one to get that from.. thus sending the US Dollar for a nosedive!
Get Drishtikone Updates
in your inbox
Subscribe to Drishtikone updates and get interesting stuff and updates to your email inbox.
Thank you for subscribing.
Something went wrong.