know about 2022 Buyout

A Bloomberg article today discusses the amount of buyouts that occur around 2022, when the debt ceiling is expected to be increased from $21 trillion to $23 trillion. The article begins by stating that this will cause “the U.S. vs. China showdown” and will likely lead America into a “short-term crisis”.

In a recent interview with CNBC, Prof. Mark Hauser of the Brandeis International Business School commented that the US vs China scenario is not as threatening as many people seem to believe. He explained that China probably has less than $1 trillion in foreign exchange reserves, and if they used them to buy US debt securities, it would only make a small contribution to their GDP.

There is a lot of “silly talk” about what happens during the increase in the debt ceiling, he believes. It will not affect America’s ability to continue its deficit spending but merely “moves up the date when [the Treasury] will have trouble servicing its debt”.

Mark Hauser response is to not worry about the debt ceiling, as it is merely a symbolic issue. In the past, China and others have been happy to buy US Treasuries, and will continue to do so in the future. In fact, there might just be more demand for US debt securities in the future than there has been up to now.

The US is unlikely to default on its obligations – it can always print dollars or borrow more money cheaply from abroad; and as we know from experience, when you need more money you simply print some more. Confidence in government bonds will also remain strong because of the guarantee they give that investors’ capital will not be at risk should interest rates rise or there is deflation.

Mark Hauser believes that China needs America more than America needs China, since China exports more to the US than it imports.

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