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Stupid Question number one. Okay, may be more than one.Take India for example.
It owes us 130B, we owe it 118B. I'm guessing this happens because the point in time when debt was issued OR maybe we just loaned them money OR maybe they just bought US Treasuries OR ... OR ... OR
So we can't simply cancel and say India owes us 12B because either/neither of us wants to do it? Maybe one/other owns short vs long term debt and want it that way?
Whatever the answers, what can investors infer from this information and how can it help them invest?
I wonder if an analogy or as @VintageFreak like to say, an ANALogy can be made with regard to countries holding foreign debt (as a result of trade) to electrical circuits.
In an electrical circuit excess voltage is often temporarily stored in a capacitor. Often countries deal with excess production (products sold overseas) by temporarily settling a trade by storing the excess in foreign debt. My understanding is that this give the exporting country a way to control inflation pressures in their own country. I have also heard that importing countries (the US in this case) use this type of settlement to help "export their inflation". Also, I believe "trade debt" can and is used as collateral for other types trade and this is where a tangled web can began to be weaved.
@Bee. since I studied electronics in my undergrad, I like your capacitor analogy (this is not ANALogy) since capacitor provides a useful purpose. I'm questioning why this article is under fund discussions and not OT.
Comments
It owes us 130B, we owe it 118B. I'm guessing this happens because the point in time when debt was issued OR maybe we just loaned them money OR maybe they just bought US Treasuries OR ... OR ... OR
So we can't simply cancel and say India owes us 12B because either/neither of us wants to do it? Maybe one/other owns short vs long term debt and want it that way?
Whatever the answers, what can investors infer from this information and how can it help them invest?
In an electrical circuit excess voltage is often temporarily stored in a capacitor. Often countries deal with excess production (products sold overseas) by temporarily settling a trade by storing the excess in foreign debt. My understanding is that this give the exporting country a way to control inflation pressures in their own country. I have also heard that importing countries (the US in this case) use this type of settlement to help "export their inflation". Also, I believe "trade debt" can and is used as collateral for other types trade and this is where a tangled web can began to be weaved.
I believe this also explains the idea of trade: