quote
"besides, if the US do anything drastic to it's currency, I am sure many world leaders will be prepared to go to war over it instead of seeing their hard earned money invested in a "safe" economy become nothing."
whatttt ! .. it's a joke, right ?
No let's put it in a perspective. You lend because you know those "IOU"s still worth something. Lending money is a form of making money when you can get more than you lend out. Even if you're not pursuing any profits and you lend simply you have so much cash, you'd still expect you will get what you lent out, to return someday. If you know tomorrow the IOUs will worth nothing, this will mean the investments or your lent means no one to anyone no more. That's equivalent of your money disappearing, or giving your money away. Are you gonna sit around and watch/let your AR vaporize into oblivion?
Why do you think when stocks fall, the primary instinct is either to rescue it, or cash in to get what you can get while you still have chance? However prisoner's dilemma-wise, if everyone is on the primary instinct of self-preservation, then everyone loses, because seeing someone else withdraws instantly means a poor situation for you, so the natural move is to retain yours before too late. The chain event of course leads the debtor worse of, and maybe a problem that had a prospective solution deteriorating into a real major/(perhaps incurable) one simply when everyone withdraws aid and leads the debtor even less equipped to manage a situation/avert/solve this crisis. In the end, of course everybody loses. This is why sometimes to help a situation is to "share and help". However no one ain't gonna do that unless they believe their action is worth it, or in other words, enough confidence. This is why confidence in your investment is extremely important, or who you invest in. If the debtor has a good rep, credit, line of trust, or anything that gives you confidence, you'd be more willing to perhaps, even lend more money to assist them get out of a sticky situation, even if they do fall into a depression. This is a psychological privilege good credits give you.
Why do you know people care about credit ratings? IOU is equivalent of the amount of trust and credits that you will get your shit back or the security of your "investments of lending". You won't lend to someone who either has a poor credit rating, or you know it's a low possibility you'll get your principle back, not to mention interests?
This is also why Washington fears China in this regard. You can be everything else, but if the players know you have the biggest amount of money, you'd certainly be protecting your ASSets, and assets = a type of power. In this case, you yield power; financial power, but most importantly, social psychological power. If you see the Donald Trump or the richest guy cashing in everything and pulling it all out, that's an abnormal move in a healthy market. There's now also less money flowing in the market. And social psychologically, you fear, because the richest guy is pulling it out. So now less of what you can get back, and are you going to wait for others to pull their shares out first and leave lesser amount for you to get back? Of course everyone else are gonna do that. And then there goes the debtor's credit, oxygen, whatever you call it, as the debtor is stripped clean, especially reputation. Everyone knows this game and the risks and what to expect, but politics is realist and prisoner's dilemma; you'd rather get everything you can get back if you don't see how keeping your investments in can guarantee its security..aka your security.
And of course, keeping someone alive is better than pulling out the defib and kick-starting again. This is why as much of a shithole Washington is in, everyone else have to try and help this guy get back on his feet. Unless there's a nice substitute to replace Washington or where you can invest your money and all, the cancerous yet well-established one is still the primary pick than an undeveloped, untested, unproven, unknown, unsure one. There's at least some credibility about this playground(because you're in it long enough and you're feeling comfortable, so you don't want to migrate unless you have no choice and something else offers you more benefits and confidence)(credibility itself, here once again, proves why confidence and trust is important). This is why there's many reasons why no one had started a revolution or something...(also why no one expects US, and US itself, do anything too drastic/risky/discomforting that yields no assurance of the consequent of the action..) as this can scare someone into disengaging and leading everyone else to do the same..and of course whoever with the most asset/money/investment involved is who people pay attention to...and of course that's where US has to rely on the biggest man on the boat to stick around...
For the same reasons, China knows its hand and what power it yields. However this power is as solid as American trust or what Washington does with its debt...so China has the potential to lose all its investments and money too...which is why China is reducing the T-bills by spending, investing on acquiring other assets..
I'm not sure if I've gotten everything, if anything, correct with what I've written. Please advise, thanks.
