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Thread: Iceland (NATO member) taking Russian loan to keep country afloat

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    Iceland (NATO member) taking Russian loan to keep country afloat

    Last edited by rj1; 07 Oct 08, at 18:46.

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    Contributor NUS's Avatar
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    US (NATO member) have a debt of trillions $ to both China and Russia to keep country afloat.

    So?

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    Quote Originally Posted by NUS View Post
    US (NATO member) have a debt of trillions $ to both China and Russia to keep country afloat.

    So?
    You don't understand. Our currency, you know the thing you use to pay for everything, hasn't collapsed. Iceland's pretty much on the verge of bankruptcy.

    (IMO, this affects the Western Alliance because Iceland is a member of the Western Alliance...and it was turned down for requests of help from Western Alliance countries. So they turn to the Western Alliance's enemy for help. It's a shrewd geopolitical move for the Russians.)

    Video- CNBC.com

    Iceland teeters on the brink of bankruptcy - World business - MSNBC.com
    Last edited by rj1; 08 Oct 08, at 18:26.

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    Cold War thinking. There isn't even a base in Iceland anymore (used to live there myself way back in the day). Are you afraid that Russian subs are going to start tracking in the North Atlantic now?

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    Quote Originally Posted by rj1 View Post
    Iceland's pretty much on the verge of bankruptcy.
    Most of East Europian countries, some Asian and probably lots others around the globe are in the same position, it's just a question of several months. There is a lot of NATO members among them. Iceland was simply unlicky to be the first. (Strangly enough, there is a lot of most loyal to US countries among them - Poland, Baltic states, Georgia, Ukraine and Pakistan.) I've have seen very grim predictions even about UK, but it's hard for me to belive them (only for psychological reasons).
    In 2009 there will be nothing special about it - asking money from anyone you can.

    Our currency, you know the thing you use to pay for everything, hasn't collapsed
    yet. (But i really dont want to go economical holy war and off-topic here.)
    I find it humorous - americans are worried about Iceland and 4 billions euro, but they dont care about Chinese able to destroy US economy any time they want.
    Last edited by NUS; 09 Oct 08, at 07:12.

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    Western alliance has taken a massive hit in this crisis....this is definitely going to have a serious effect on everything around us.. This is going to tilt the scales of world power in favor of the other axis

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    Quote Originally Posted by Mercenary View Post
    Western alliance has taken a massive hit in this crisis....this is definitely going to have a serious effect on everything around us.. This is going to tilt the scales of world power in favor of the other axis
    How so? The Global North will recover long before the Global South builds up. And among the countires of the Global North the big ones will remain dominaint. They have the wealth, brain power, research instatutions, industrial bases, law codes, and political establishments to be powerful. Among the big powers, the biggest will remain the biggest. America will still have thousands of nukes, millions of college grads, millions of miles of road and rail, abundant resources and a strategic global location for trade.

    In 10 years there might be a new player or two on the global stage dependign on when you date China, India and Brazils arrival as major powers but the axis will remain the same.

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    Quote Originally Posted by NUS View Post
    I find it humorous - americans are worried about Iceland and 4 billions euro, but they dont care about Chinese able to destroy US economy any time they want.
    And how would they do that?
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    And how would they do that?
    If embargo/trade wars ever start the thing I'd be worried about most is Russia only accepting Euros instead of U.S. dollar for gas/oil sales (ala Iran): the dollar will sink like a stone + inflation may run wild. This is probably why U.S. won't seriously take that route towards Russia.

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    Quote Originally Posted by Spork55 View Post
    If embargo/trade wars ever start the thing I'd be worried about most is Russia only accepting Euros instead of U.S. dollar for gas/oil sales (ala Iran): the dollar will sink like a stone + inflation may run wild. This is probably why U.S. won't seriously take that route towards Russia.
    But how does that relate to "Chinese able to destroy US economy any time they want?"
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    But how does that relate to "Chinese able to destroy US economy any time they want?"
    Wholesale of U.S. debt perhaps, same effect as a massive self off of a stock. By the same token if foreign banks will stop buying U.S. treasury securities. Japan and China amount for about half of U.S. external debt, part public part gov't. (btw Russian gov't for example holds $74bln worth of U.S. debt - 6th place http://www.treas.gov/tic/mfh.txt)

    "'Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely." (BIS says global downturn could be 'deeper and more protracted' than expected - Forbes.com)
    Last edited by Spork55; 09 Oct 08, at 23:13. Reason: more accurate numbers of debt holders

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    Quote Originally Posted by Spork55 View Post
    Wholesale of U.S. debt perhaps, same effect as a massive self off of a stock. By the same token if foreign banks will stop buying U.S. treasury securities. Japan and China amount for about half of U.S. external debt, part public part gov't. (btw Russian gov't for example holds $74bln worth of U.S. debt - 6th place http://www.treas.gov/tic/mfh.txt)

    "'Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely." (BIS says global downturn could be 'deeper and more protracted' than expected - Forbes.com)
    Let's think this through.

    What happens to the RMB in relation to the dollar and the EU if China either stops buying US debt or starts to liquidate their holdings?
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    Let's think this through.

    What happens to the RMB in relation to the dollar and the EU if China either stops buying US debt or starts to liquidate their holdings?
    This is out of my league I'd imagine selling half a trillion $ worth of U.S. securities will have a dramatic impact on either side. Good question though, I'd love to learn more.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by Spork55 View Post
    This is out of my league I'd imagine selling half a trillion $ worth of U.S. securities will have a dramatic impact on either side. Good question though, I'd love to learn more.
    Good to hear that you are interested in this question.

    You are correct in your assumption. Selling massive US debt holdings on the international market will have huge impact on both currencies.

    The reason China buys US debt isn't that they are nice and let us borrow their money. The reason is to keep their currency relatively weak to the dollar. Weak currency is good for exports. China's economy is export based growth economy. It has to maintain a weak currency to keep products cheap and desireable.

    If China decides to sell its holdings of US debt on the international market then the dollar will depreciate against all currencies in the short run. At the same time, RMB will appreciate against all currencies.

    Dollar depreciates is bad for US quality of life, but great for our export business. Everything we import will get expensive. We will be forced to use more of our resources to make things right here, meaning we can't take advantage of trade.

    In the long run, however, the dollar will recover. US debt is AAA on the market. US government has never defaulted on a payment before. When it comes down to it, people want to make money and US debt is close to being a sure bet.

    Now, dollar recovered in the long run because everyone bought the temperarily cheap US debt at a firesale hosted by China. RMB goes through the roof. Who's screwed?
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    Good to hear that you are interested in this question.

    You are correct in your assumption. Selling massive US debt holdings on the international market will have huge impact on both currencies.

    The reason China buys US debt isn't that they are nice and let us borrow their money. The reason is to keep their currency relatively weak to the dollar. Weak currency is good for exports. China's economy is export based growth economy. It has to maintain a weak currency to keep products cheap and desireable.

    If China decides to sell its holdings of US debt on the international market then the dollar will depreciate against all currencies in the short run. At the same time, RMB will appreciate against all currencies.

    Dollar depreciates is bad for US quality of life, but great for our export business. Everything we import will get expensive. We will be forced to use more of our resources to make things right here, meaning we can't take advantage of trade.

    In the long run, however, the dollar will recover. US debt is AAA on the market. US government has never defaulted on a payment before. When it comes down to it, people want to make money and US debt is close to being a sure bet.

    Now, dollar recovered in the long run because everyone bought the temperarily cheap US debt at a firesale hosted by China. RMB goes through the roof. Who's screwed?
    It's a symbiotic relationship but I think Chinese exports to U.S. account for about 1/5 of overall exports with exports to EU surpassing those to U.S. this year. Of course their ability to export to U.S. would be hurt by a stronger yen but can't China buy up EU debt in the same manner while selling off U.S. debt ? (Europe is 'swing factor' for Chinese exports - International Herald Tribune). Also, with energy demands growing as they are in China a stronger yen may let them get more oil and gas for their money.

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