

Ask HN: What country would you lend money to? - CulturalNgineer

Many nations besides the United States are seeking to borrow funds by issuing bonds.<p>While in the past the U.S. has always been a "preferred" borrower because of a world "dollar standard" and a presumption of good governance there are many indications that this perception is changing.<p>With so much of our exploding debt being short-term any fall off in a willingness of others to finance it could be disastrous for our future.<p>If you were one of those bond buyers (and being broke I'm definitely not a bond buyer, but very interested in our future)...<p>What country would YOU lend to?<p>Are we still the best "bet" on the planet? Are other nations "tied" to us in ways that prevent them for NOT lending to us?<p>Or should we all start hoarding stocks of non-perishable foods?
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mdasen
The uncomfortability with the dollar right now seems to be a combination of a
short memory and political sentiment.

The Euro has been strong over the majority of the past decade. Yes, less than
10 years time. Remember that from 1999 to 2002, the Euro was falling with
decent consistency.

The US Dollar has been a stable currency for a lot longer and the US economy
has done well for a long time.

People are worried about debt, but it might not be that much of a risk. If the
banks pay back the money that was lent to them, the treasury can take that
money and destroy it and there's no expansion of the money supply beyond a
short stop-gap. Likewise, if they pay back the money with interest (and
there's little chance this won't be the case), the US government can gain
funds as well as not expanding the money supply.

The perception has changed a little, but not drastically with those devoid of
political intent. Sure, part of it is that the Bush administration played
loose with the currency and, in fact, sometimes argued for a weaker dollar and
the current wars make the US look less of a good investment, but part of it is
definitely political. I mean, if you're China you sure want to create the
perception that the US won't be the continuing standard. If nothing else, it's
like having two parts suppliers even if you don't consider one of them to be a
serious option - you can always use them as a negotiating chip with the
supplier you do consider a serious option even if it's a hollow threat.
Likewise, many European politicians would like to consider their power rising;
Iranian officials love to blast the US; people opposed to the wars want to
play the debt card; etc. And some of it is legitimate, but some of it is FUD.
I mean, if I came on here and said, "Linux just doesn't do graphics" there's a
bit of truth there in that graphics card drivers might not come out as quickly
or be as optimized, but it's not like you can't have a nice GUI or use the
GIMP or whatnot, but I can say "truthful" things that are completely
misleading because I want to advance an anti-Linux agenda. And the same is
true here, one can say that the treasury (doubled|tripled|whatnot) the debt
and not talk about how most of that is being repaid and it doesn't look like
there's much of a chance it won't be repaid. It's the "truth", but it's still
misleading. And if you have an agenda, those truths are your friend. Again,
not to say that there aren't problems, just to say that some people might be
pushing those problems out of proportion to advance an untrue agenda.

Oh, and one thing is important to note: government debt doesn't need to be
financed. It does in the long-run, but not in the short term. A government
with its own currency has the option to print money. When a government just
prints money, it can cause inflation since if each dollar is a fraction of the
economy as a whole and there are now more dollars, each dollar is a smaller
fraction of the economy. Now, I say "can" there, because there isn't some
automatic mechanism - it's based on people's perceptions. In fact, inflation
can happen even without an expansion of the money supply simply based on
people's fear that inflation should be happening.

And it looks like the "exploding debt" will only be short term as many of the
banks have already repaid their loans.

You can try betting on hoarding food or whatnot, but you're most likely going
to turn out wrong. It's not that other nations are "tied" to us so much as the
US is still a very good economy. Plus, US debt isn't so bad. As of 2008, it
was at ~38% of GDP. Compare that with Japan at ~172% of GDP and you can see
that many countries do live with a lot more debt (Italy 105%; Greece 97%;
Egypt 86%; Israel 76%; Canada 63%; France 68%; Germany 66%. . .). And as long
as all the TARP money comes back to the government, there hasn't been any real
expansion of the debt - it was a short term loan that looks like it'll be
repaid quickly if it hasn't been repaid already.

Now, there are challenges. Rising healthcare and third level education costs
in the US don't look good for long-term competitiveness, but one of those
looks to be on the docket at present and it's easy to forget many of the
problems that European countries have when one isn't resident there. But the
US economy is far from a tale of doom. Challenges will be ever present - what
matters is whether you address them or not and whether you do so consistently.
And the US has faced up to challenges over a long period of time.

//That said, bonds are a terrible investment as you can usually get better
rates in a CD from a bank.

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3pt14159
The US does not just have 38% of GDP in debt. That is just the PUBLIC debt. Or
as the CIA puts it "...the cumulative total of all government borrowings less
repayments that are denominated in a country's home currency".

[https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/geos/us.html)

USA

Public Debt: 37.5% of 14 Trillion Dollars (GDP)

External Debt: $13.75 Trillion

Total Debt: 138% of GDP

Canada

Public Debt: 63.8% of 1.303 Trillion (GDP)

External Debt: $0.7811 Trillion

Total Debt: 123% of GDP

ALSO, it is very important to clarify that Canada does Net Present Value
accounting for our retiree programs (our version of Social Security actually
has a FUND where we save money for our retires, its not a cash in cash out
program). If the USA did account like Canada did you guys would be at roughly
double our debt level. Check out IOUSA for a better explanation.

~~~
9oliYQjP
Interesting stuff. Where would Canada be if we accounted for things the way
the U.S. does? Would we be at half our present debt level?

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dkersten
Honestly, if I had enough money, I'd invest - in return for citizenship (some
countries do this) - in a country that meets (as close as possible) the
following criteria:

1\. Isn't in the EU

2\. Isn't the US or too closely tied to the US

3\. Isn't too closely tied to the UK

4\. Isn't terribly unstable, unpredictable or currently at war

That doesn't leave me with much, I guess... though then again, I'm doing this
for the citizenship, not the investment, so maybe my criteria isn't the most
useful ;-)

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CulturalNgineer
That's a very interesting aspect regarding the citizenship angle... hadn't
thought of that... certainly could be influential on a decision...

I heard an idea once that high mobility could lead to countries having to
'compete' for citizens!

~~~
dkersten
The way I see it, if theres another world war or other major global event and
I need to relocate for whatever reason, having a citizenship in a country that
meets my criteria would be extremely beneficial. If I were to actually invest,
then obviously theres more to be considered - like actual value of the
investment, difficulty of traveling to/from country (especially under extreme
circumstances), relations with other countries and so on.

My criteria is based around the fact that the one EU country is as good as the
rest, really (and I already have an EU passport), same goes for commonwealth
countries. Finally, theres no point in "hiding away" in a country that will
give in to US pressure without a fight either.

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fauigerzigerk
I would not lend USD to the US. I would lend euros to the US but they don't
want any. If my income stream was US based I might lend money to the US in the
form of TIPS (Treasury Inflation-Protected Securities).

The US is not going to formally default on its debt. What they are going to
try is to inflate the debt away and TIPS protect you against that if your
income is in USD.

~~~
BearOfNH
The formulas used to adjust TIPS principal and interest are based on official
US Gov't. statistics, which means they are slightly more trustworthy than a
politician's promise.

Still, if inflation is your concern then better a halfhearted adjustment than
none at all.

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amalcon
I'm not unbiased enough to decide if some other country would be a better bet
than the U.S. Still, I suspect the top outside choices would be India and
Japan, in that order. Japan is miles ahead of the rest of the world in
robotics, which means that if the price of Chinese labor ever increases, they
own manufacturing. They still have a piece of the pie, even with rock-bottom
labor prices, which says something.

India is even more interesting because there are a lot of educated people, but
still very low living costs. Early America is the last time there's been a
combination like that.

~~~
mynameishere
Here are the yields on Japanese Bonds

<http://www.bloomberg.com/markets/rates/japan.html>

2.2 percent on a 30 year bond, which means that the maximum upside on the
principal is roughly 20 percent. So, a 10K investment could theoretically rise
to 12K if the 30 year yield drops to 0, which it won't. If it rises to
something sensible, like 6 or 8 percent, you take a bath.

People seem to think of bonds like they do savings accounts, but they aren't.
There's a huge principal risk. And government debt always seems "off" to me.
For instance, Japanese debt is largely held by the Japanese themselves, for
patriotic reasons sometimes. This distorts the market.

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fauigerzigerk
Yes there are countries that are tied to the US in the sense that they are
forced to keep lending. In fact this is the most striking aspect of the
current crisis.

The deal is this: China lends money to the US and US consumers buy chinese
exports for that money. I'm not quite sure what will happen when this scheme
ends. It may be ending right now so we will see.

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stonemetal
As the US has recently demonstrated all of the industrialized nations are so
interconnected that a major failure in one is a major failure in all of them.
If there is any country I would consider loaning money to it would be the ones
that did the best in this past mess. From there I would have to look at the
countries fundamentals.

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cmars232
I would invest in a sovereign not tied to a physical piece of land, because it
would be an interesting sociopolitial experiment. Like Mr. Lee's Greater Hong
Kong in Snow Crash.

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rimantas
Norway.

~~~
wheels
I voted you up, but that's kind of like saying you'd lend money to Bill Gates.
There's no point in it. The question in lending, apparently, is who can you
lend money to that is at the intersection of really needing it and really
likely to repay it.

Norway would just pay you back immediately, thus making your lending
pointless. And if we're actually talking about lending them an amount that
they'd need, like, say, a trillion dollars, I'm not sure that I'd bet long
term on the Norwegian economy at that scale.

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jayliew
You have money?

