Isn’t PIMCO owned by the Germans and wasn’t he busted for sending out a memo to his clients a couple of years ago?

You’re absolutely right that if they really want to unload and start discounting then it makes sense for us to buy it back.

Daniel Drezner, http://www.danieldrezner.com/blog/, has a great discussion on this and the various issues involved vis a vis export based economies and how we need each other. This is all still an outgrowth of the post WWII Bretton Woods deal.

That nasty ol’ supply and demand dragon rearing its head, heh? If those holding dollar denominated debt want to sell it off quickly and in larger quantities than there are obvious buyers for, they’re going to have to sell at a discount. If that happens it seems to me we should by it back. Why not buy back our own debt at a discount – isn’t that the same thing as debt reduction?

And if the funds realized from the selloff start chasing after more euro debt than is available for purchase, won’t they have to buy the euro debt at a premium?

What am I missing? It sounds an awful lot like my lifetime investment strategy – sell low, buy high.

There are very few people/countries capable of buying large amounts of US debt. If the Asians want to sell out, who’s going to buy? Yes, this would have an effect on our ability to place additional debt without raising interest rates, but, as Jerry has pointed out this is a globalized world.

This sort of reminds me of the stand-off scene in a movie where the hero is facing numerous small fry bad guys and the head bad-guy says “He can’t shoot all of us!” Then they all look at each other to see who wants to die so the others can live.

I doubt that anyone wants to take the risk that taking us on would entail just so France can rule the rubble.

You have yet to explain what France has to gain by your proposed “rule or ruin” strategy. The US will still fair better then Europe [including France] or Asia in a global depression. Furthermore, since France’s goal is an EU controlled by France, how would a global depression contribute to a unified Europe? Such a depression is more likely to fragment Europe then unite it. This would reduce French influence even more.

As an aside, perhaps France’s low level of foreign trade as a percentage of GDP is more of a reflection of their inablity to compete rather then economic health. France also has 10% employment and virtually no growth.

If the foreign investors in US debt believe that the dollar will go substantially lower it seems to me they’d want to cut their losses and get out. On the other hand, if they believe it is a temporary situation then selling dollars to buy euros would be a case of sell low, buy high.

That the US economy is growing and the EU economy is a bit stagnant it seems to me would weigh in against selling low and buying high – one might expect the dollar to rebound against the euro. And if, as others have made the case for, major selling of dollars would have some very real an negative impact on the dollar which would, in turn, have real and negative impact on the growth of Asian economies (Japan, China, SK, India) would not seem to be a wise move if done for some sort of “punative” or “economic war making” purposes.

Just the recent “threat” of this sent the dollar down somewhat dramatically which means they’d be losing value hand over fist while they got out. I just don’t see this as particularly bright investement practice. It seems more likely they’d hedge and prop and try to avoid any major collapse of the dollar while they reduced their positions.

I’m just speculating here but doesn’t the proposed SSN reform, such as it is, bear at least a minor resemblence to a dollar buyback plan?

Destroying the Saudi oil-fields (or any other major disruption to the oil supply) would almost certainly tank most modern economies. The US, while certainly not in a good position is better positioned in this respect than Europe. I don’t see Europe encouraging this sort of “attack” on the US. If Russia, on the other hand, is completely in the tank anyway, and apparently has some real difficulties bringing their petro to market and/or increasing production, a major price increase might suit them just dandy. How the Chinese would react to such a thing is anyone’s guess.

My point, again, concerns France’s behavior and strategy more than Germany’s. You ignore the fact that international trade continues to represent a very small part of France’s economy– IIRC it used to be only 8-9% of French GDP in the late 1990s and is hardly more than that today, if it is indeed higher.

It’s France that has a lock on the ECB and its policy, and the French would probably calculate that the effects of a selloff of US treasuries by Asian central bankers would present more opportunity than harm to their strategy of seeking to knock the US off its perch. The danger that I’ve outlined is so real that the world’s preeminent hedge fund and bond fund managers (Bill Gross of PIMCO, eg) are tailoring their investment strategies accordingly. The money guys are not swayed by sentiment. We should not be, either.

Once again I have to take issue with your position. If the US economy were to collapse in the manner you described the international economic repercussions would be on the order of the Great Depression. Saying that “yeah Germany would have a problem” and dismissing it with a cavalier only Germany is heavily dependent on Exports to the US shows an ignorance of how the world economy works. Here is news for you. If Germany tanks, Europe tanks. Germany is the biggest economy in Europe.

Secondly, if the US economy tanks, then so do all the major Asian economies. If you don’t think that would have a major impact on Europe, then I don’t know what you’re smoking.

The US economy has born the burden of propping up the world economy since the early 1990’s. This is the sole reason for our trade imbalance. We have grown at rate of 3-4% for most of the last 15 years. Europe and Japan have been basically static, although Japan has been showing signs of life lately. This growth gap has caused our imports to rise faster then our exports. The dollar surplus depresses the value of the dollar as it is supposed to. There are two ways to solve this imbalance. Help the world grow faster or adopt the kind of economic measures that create little or no growth and high unemployment. The Democratic Party solution is to become more like Europe [because high levels of dependency go with high unemployment] while the Republicans would like the rest of the world to cut taxes and promote growth. Something has to give to restore balance.