to the extent that the rich folks in other places are "paying for the war," most of it is buying US Treasury issues, which means that we in the US pay them interest. As long as they get that, won't they be happy?
John Gulick sez:
Yeah, the US makes interest payments to its creditors, but US government bonds are lower-yielding than they otherwise would be precisely because demand for them is amplified by "diplomatic arrangements" b/w the US Treasury and non-US central banks (a point made repeatedly and forcefully by Michael Hudson). Also, the US is continuously rolling over its debt burden by continuously issuing new T-Bills. All central, provincial, local governments everywhere do this, of course, but not with the freedom of maneuver of the US federal government.
Jim Devine sez:
would yuan revaluation really be that bad for China? as Dean Baker points out, China can use domestic sources of spending to replace declining net exports.
John Gulick sez:
This is way too complex for me to figure out, but a key question is can internal demand drive the expansion of the Chinese economy ? China is already saddled with a pretty bad overcapacity problem and inflated landed property market. Beijing's fiscal dexterity is also hamstrung by 1) paying down debt on Three Gorges dam, a blitzkrieg of new airport and road construction, and other major physical infrastructure projects, 2) declining customs collection attendant upon WTO tariff reduction, and 3) rampant tax evasion.
Jim Devine sez:
I know that dollar seigneurage is a big thing, but what is this income as a percentage of US GDP?
Doug Henwood sez:
Tiny. I saw some estimates by a Fed staffer once - can't remember the exact number but it was on >the order of $13 billion. The real bonus for the U.S. is borrowing madly in our own currency, and it's >hard to put a pricetag on that.
John Gulick sez:
I blather on and on about US seignorage privileges, but apparently my understanding is not very precise or scientific. What exactly does the $13 billion figure represent ? I thought that seignorage simply referred to the overall phenomenon of a hegemonic country's domestic currency doubling as "world money" -- predominant central bank reserve currency, means of payment for critical internationally traded raw materials, means of paying off big lenders, etc. -- and the consequent freedom of action this gives that hegemonic country (including, like Doug says, "borrowing madly in (its) own currency").
John
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