<<I use the term "owe" because China can sell its T bills and bonds to anyone it wants to. Schiff makes its sound like the Chinese are married to said debt as if China is the mature adult and the U.S. is the deadbeat brother-in-law.>>
Who would they sell them to?
<<If the value of U.S. debt does in fact fall to 50 cents on the dollar and gold goes to $5000, the U.S. could quietly sell its gold and use the proceeds to buy back debt at 50 cents on the dollar. Lend China $2 trillion, buy it back for $1 trillion, and sell gold at its inflated prices to get that $1 trillion.
Schiff's doomsday scenario sounds pretty damned good to me.
I have posted something like this before and I will again. Which creates more stress on the dollar and federal budget? $20 trillion in debt with 10% interest or $10 trillion in debt at 2% interest.>>
First of all I think you mean $10 trillion with 10% interest or $20 trillion with 2% interest.
What I can't figure out is what you're talking about. Are you saying running huge budget deficits reduces interest rates? Or are you just saying rates aren't going up, period?
Your theory about buying debt back at 50 cents on the dollar makes no sense either. If we're talking about a high inflation scenario then it contradicts your theory about 2% interest. Under high inflation rates won't be 2%. Nobody would be willing to buy new debt at 2% with high inflation. Bonds going to 50 cents on the dollar means a huge rise in interest rates, unless you're suggesting a fear of the US defaulting on the bonds - that would be pretty bizarre to suggest as being no big deal.
Also if we're talking about the high inflation scenario then that implies we can't pay our bills except by printing money. So what does buying back the debt with gold accomplish? To push rates back down in order to issue more debt? We could buy back debt with depreciated printing press dollars in any case. Selling gold would be only to prop up the dollar so we could buy more oil from Brazil or something. Nothing else.
The value of US gold reserves is about $240 billion.
I can't really figure out your point about GDP or net worth versus Chinese debt holdings either. In any case the debt is expanding very rapidly, in case you weren't aware. That $2 trillion will by far larger in just a few years.
<Who would they sell them to?> You are joking right? Who would want $2 trillion in the equivalent of cash?
<Are you saying running huge budget deficits reduces interest rates? Or are you just saying rates aren't going up, period?>
Interest rates have not gone up despite huge deficits. They aren't going up, but that isn't the issue here.
<If we're talking about a high inflation scenario then it contradicts your theory about 2% interest.>
You are comparing old debt, the kind China owns, to new debt that might be offered in the future. Apples to oranges.
< Bonds going to 50 cents on the dollar means a huge rise in interest rates.>
Sure would. That is why in Schiff's doomsday scenario asset sales make more sense than issuing new debt.
<I can't really figure out your point about GDP or net worth versus Chinese debt holdings either.>
Well, that probably tells me more than anything else. If you have a net worth of $340,000 and income of $14,000, how hard is it really going to be to pay off $2000?
You can't make the gloom and doom speech unless you have an audience completely ignorant of how much the U.S. GDP is and what the net worth of the U.S. is. Anyone familiar with those facts knows Schiff is full of it.