Borrowing money from Mexico, China and maybe other countries!?

Question

This makes no sense to me and if anyone can give me a real true answer would be appreciated because I am really getting confused on what this country is doing.

Answer 1

In an international setting ie. borrowing and lending, the perspective i somewhat different than we normlally think. Normally we think that lender is providing some help to the borrower and if we borrow from some other country we are a kind of underdog party to the transaction. There is nothing like that when a rich country borrows from a poor country. China does not lend money to USA to start with. China want to sell her goods to the US. Why, because the goods that China will sell to USA will otherwise be sold to USA by other countres because nowadays it is uneconomc for usa TO PRODUCE SUCH GOODS IN usa BECAUSE THE LABOR COSTS ARE  higher in the US ( that is why US labor has a much higher per capita incomethan Chinese labor). To keep the Chese labor emplyed and not get violent against their communbist party rulers, China wants to sell these goods to USA. For USA it makes economic sense because Chinese goods are cheap and makes inflation low in the USA. But China does not want to buy much from USA because their people are poor and cannot afford to buy high technology products like super computers or investment dvise fro investing n hedge funds or highly effective medicines to cure or treat cancers or rare diseases or ..So China can export products to USA but are unable to buy much things from USA. So, China has to buy US financial instruments. US will not allow Chinese Govt. to buy American companies for strategic reasons. So the Chinese buy US treasury bills. The more they buy treasury bills the more the treasury interest rates falls. But since US has been running trade deficits (exporting less than it is importing) and current account deficits, the value of the dollar is falling. So, the value of Chinese investment in US treasuries are falling. So, you see the Chinese are also suffering. Ideally by exporting much morte than imports or importing much more than exports continuously year after year is not good for any country. So, both the USA and China are basically running imbalances in their economies. China cannot really gain, nor can the US gain if the situation continues like this.

This is not so much an issue of borrwing and lending. The issues are on the US not being able to produce efficently such products that the Chinese can buy from them in exchange of the cheap goods they are selling in the USA. and the China being unable to grow their economy at a high rate without selling cheap goods in USA nd keeping the dollars earned invested in US treasuries.

This economic imbamance cannot continue for decades. This will get corrected over time.

In inetrnational trade you cannot really borrow or lend money. IT is buying things promising to sell at a later period or selling goods on credit with the understanding that goods will be bought in adequate amounts later. It is actually a borrwing of good and services agains future repayments with goods and services. If this happens only one way for long, both the borrowing and lending country will have economic problems waiting for them ahead,.

Answer 2

Its a complicated problem but I can give you a simple answer to your question..

Our country has always been in debt, ever since Revolutionary period.  However, things have gotten worse lately (and during Reagan Presidency) with high tax cuts (esp to rich) and high spending.

That's a problem..,

It leads to bigger deficits.  The government is using more money than it takes in.

So, we have debts.  Debts are the result.  The higher deficits are, the more we have debts.

China and other countries (mainly Chinese) are helping to pay the debt.  That is how we are still able to spend and pay for things despite having a debt; they're paying it and we owe them a lot of money (along with other countries that help pay our gaps etc).

Answer 3

The US is borrowing money from these countries, because we are spending more than we can afford.  When you spend $2.9 billion per week on a war, you're bound to borrow money eventually.  

If you want use to stop borrowing, well then you'll have to either stop the war, reduce funding for education, welfare, or other government funded activities or raise taxes.