The Creditor-Debtor Argument

[[KMA]Avenger]

when it comes to 1 country holding another country's debt, as in China and the US, China will have considerable influence over the US for 1 simple reason, they are holding a vast amount of dollars, they can simply threaten to dump those dollars for whatever reason...

think about it, when Secretary of the Treasury, Tim Geithner was in China giving some Chinese Students a lecture (or whatever), he told them the world economy would pick up and the Dollar is safe, he was laughed at by the students lol

i use the China/US as an example because while China holds a large amount of the US debt, they also have the ability to threaten the US due to their world power status.

[agapooka]

I'm not assuming that the only factor involved in such a relationship is a creditor-debtor arrangement, nor am I assuming that the creditor is a country, as you seem to assume!

That said, and as I've already suggested, if a country's debt is large enough (e.g. to the extent that it seems impossible to ever repay it, especially if it is growing, not shrinking), that country has become so dependent on their creditor that they cannot excercise their military advantage without their creditor's financing.

As I'm sure you know, deploying a military force is no longer just a matter of an inspirational speech to gather fighting men to take their family swords in arms. A lot of money is required to deploy a military force.

US Debt Clock
Cost of US wars

So, if Country B's military is, indeed, larger than that of their creditor, even if it is a country - Country A, it essentially depends on financing from that country in order to operate its military. You mentioned theoretical exports, upon which Country A could be dependant, but you failed to realise that money has become the most important export, upon which Country B has grown dependant.

Furthermore, it's possible that the creditor is not a country! It's possible that it is a corporate entity, ressembles one or shares some of its attributes. Of the 11 trillion USD debt and then some figure from the debt clock, over 776 billion is said to have been bought by China and another 711 billion from Japan. These countries, however, did not loan the money to the US, they are just holders of US debt instruments, that is, they bought a portion of the US national debt. Who, then, ultimately is the creditor?

http://en.wikipedia.org/wiki/List_of_co ... ublic_debt

Also, a few quotes from the Wikipedia article on national debt.

Global debt is of great concern since, very often, social capital is depleted (such as cases of pestilence or welfare services on families or friends), and natural capital is ravaged for "natural resources" to make interest payments.

Creditary economics and Islamic economics argue that any level of debt by any party simply represents a violent and coercive relationship that must end.

Sovereign debt problems have been a major public policy issue since World War II, including the treatment of debt related to that war[...]

So called developing countries, for example Yugoslavia and least developed countries often had less government debt (perhaps because they were unable to borrow on world markets) until their break up and the coming of democracy, when the new governments started to borrow money from the IMF.

As you can see, the creditor party, due to the buying and selling of debt, can be composed of several entities. The creditor party is not one country, although it may include several countries which have bought a portion of the debtor's debt, often borrowing money from their creditor to do so, becoming debtors in the process (if they weren't already), and selling their debt to other countries so that they can repay that debt to their creditor. Debt is the world's commodity. Debt to whom? If it is mutual debt to everyone else, then it appears that the current financial architecture is one that is designed to keep countries in debt, as debt is used to repay debt. If money is backed by debt, it cannot be worth more than that by which it is backed. Money represents debt and, in many senses of the word, it IS debt. Is this why a country must pay interest to their reserve banking system when it prints money for it and lends it to the country at interest? Can an entity be indebted to itself? Or is the reserve bank another entity altogether?

There are also interesting phenomena that have recently occured. Take the hyperinflation of Zimbabwe, where, in attempting to repay IMF loans, printed more money, essentially devaluing all existing Zimbabwean dollars. Eventually, people were walking around with Z$ 100,000,000,000 bills to buy eggs. Oh and it got worse:

In February [2009] the government of Zimbabwe revalued its currency. One of these new Zimbabwean dollars is worth one trillion of the previous.[41] This move took the number of decimal places removed during the period of hyperinflation to 25 (1025 = 10 septillion short scale; thus, if no revaluations had taken place, Zimbabwe would now be issuing 10 septillion dollar notes).

Debt CAN be used to destroy a country's economy. Even if Zimbabwe had the largest army in the world, being brought in a situation like they were, they became completely impaired. Obviously, it'd take a bit more effort to bring the US to its knees like that, but with both debt and inflation on the rise, it cannot help but happen someday, unless the complete world financial architecture is restructured.


Agapooka