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Discussion » Questions » Finance » I think it's INSANE if true that the US borrows money from other countries so it can gift/loan money to foreign countries. Do we?

I think it's INSANE if true that the US borrows money from other countries so it can gift/loan money to foreign countries. Do we?

If we do such a dumbhead thing whose bright idea was it initially and how long ago did it start? Talks of budget are ludicrous if we keep borrowing from some sources to lend/gift money to other countries. Right? It's a vicious circle, a vicious cycle, a merry-go-round going nowhere. Senseless. Why do we keep doing something that makes no sense?

Posted - January 10


  • 6759
    I agree it is stoopid. 
    And to top it off many times the counties we are giving it to don't even like us.
      January 10, 2017 6:29 AM MST

  • 31386
    I know sweetie. What the he** is wrong with us? I will never ever understand that. Think we will ever be given a reasonable/logical/sensible reason? Me neither! Thank you for your reply m2c!  :)
      January 10, 2017 10:13 AM MST

  • Not in the way your question outlines Rosie.  All government money essentially comes from the same tax pot unless legislation is in place to stream monies specifically to certain government organisations.

    I answered a similar question (or answered a question similarly) a little while ago and I think I recall that the US foreign aid budget was composed of about 1/3 medical supplies and services - which are mostly sourced in the US then sent to their destination.  So already a large slice of that money is rooted in the US and provides benefits in the US to sales, manufacturing and tax figures.

    So saying 'stop all foreign aid' and doing so will immediately cause a dent in the profitability of US companies that supply certain medical supplies.  The result of this is they will pay less tax as a result, they may shrink in size and scope of operation, delay development or expansion, lay people off, etc etc..  So by stopping the money 'leaving' in the form of bandages and antibiotics, one would likely reduce the tax take from a section of the economy and perhaps cause other 'ripples' in the model.

    So what of the other 2/3?  That gets complicated, as it covers everything, from payments to foreign governments for specific contracts, actions or arrangements, to payments to foreign companies to facilitate 'more open communications' or other such management speak.  The thing is, little aid is given without some expectation of a return.  The public may know nothing of it, but all sorts of arrangements and deals go on behind the diplomatic doors that might be more difficult, less profitable or simply impossible without oiling the wheels beforehand.

    Governments waste money, of that there is no doubt.  But they can also make money for their country and foreign aid is one of those areas that can, and often do show a short term return of benefit to the giving nation.
      January 10, 2017 7:59 AM MST

  • 4138
    We have borrowed money from China and Japan to fund the war in Iraq and Afghanistan.
      January 10, 2017 10:15 AM MST

  • The US has borrowed from Chinese and Japanese banks - there is a difference.  While it is true that these banks can be used by governments to promote their policies, I think you underestimate the power major banks hold over these governments.  Let me be clear - governments are run by banks, not the other way round.  Ultimately it's that simple.

    All nations have debt and almost all nations are in debt but debt alone is not necessarily bad.  The current world economic model works and has worked for a long time by moving debt around.  We know it crashes on a regular basis and it can no longer be relied on to produce the required end of year growth figures it was doing in the '90s that made the crashes less painful but we're still using it.

    It's not a system I like and I'd dearly love to see it replaced.  The question is, what with?  As I'm happy to admit I'm not a visionary thinker in any way I can also happily admit that I don't know (or at least I don't know how to change things without huge loss of money, life and property).  It's not governments I think need to change so much as the world banking system itself, but how to do that coherently is beyond me.
      January 10, 2017 10:58 AM MST

  • 4138
    You don't think the Chinese banks are controlled by the Chinese government?
      January 10, 2017 11:07 AM MST

  • That depends on what you mean by 'controlled'.  Pretty much everything has government involvement, there's no denying that.  But it doesn't leave businesses of high importance or their officials powerless or with no influence or voice in the face of government diktat.

    As evidence, I would propose Wu Xaoling, who gave the CPoC a dressing down in the late '90s over their inaction during the banking crisis that was then enveloping the eastern markets.  I dug around a bit and found her quote, "The Communist Party should play its due role in improving corporate governance in banks."  Hardly Shakespearean I'd agree, and it may not sound very forceful, but this was to a band of old men and women very unused to being questioned, upbraided or denied.

    Could the CPoC take control of the Chinese national bank?  Of course, as could the UK government for the Bank of England, the German government for Deutsche Bank, etc etc.  It would have to be something fairly earth shattering though (the last time I'm aware of a major nation doing so was 1930s Germany, as a response to massive and unrepayable national debt).  The point being, simply because some US debt is held in Chinese organisations is no need for concern, any more than one should be concerned at debt being held in the UK, France, Japan or pretty much any other nation.
      January 10, 2017 2:34 PM MST

  • 4138
    I don't particularly care for the idea of a government that is not an ally holding our paper.  Sorry.
      January 10, 2017 9:37 PM MST

  • Then you need to have a word with Kissinger, Nixon et al and throw out the economic hegemony the US has enjoyed since the end of the Bretton Woods arrangement in '71.  It is the petrodollar system that is mostly the cause of everyone having US currency and if you want to buy oil on world markets you must have dollars.

    You can't have it both ways I'm afraid.  I singularly dislike Kissinger, (I hold him largely responsible for the preliminary work that has allowed destabilisation to envelop the Middle East), but I take my hat off to the petrodollar system and it's value to the nation that thought it up.  It's a brilliant bit of politics that has helped to funnel huge sums of money into the US economy over decades, something all US citizens have benefited from.

    There are some (and I have no idea if they're right or not) who are predicting the collapse of the petrodollar system some time in the next ten years.  If that does happen in a way that is unforeseen, unprepared for or badly handled it will be truly disastrous both for the US and the world economy.
      January 11, 2017 5:40 AM MST

  • 31386
    AARRGGHH! :( So as Old School keeps reminding me "it's complicated"! Thank you for your awesomely helpful and thorough reply MrWitch. The question to which you referred was probably mine. I hope this time your answer sticks since it is a really hard thing for me understand. Thank you once again for your patience as well. Some things bear repeating...over and over and over and over again! Happy Tuesday! :)
      January 10, 2017 10:25 AM MST

  • It is 'one of those things' Rosie.  :)

    There are no simple answers (sometimes I think, to anything) that everyone will like.  I've read articles today about ideas on a maximum wage policy and was wondering how loud the howls of outrage would be were such a policy to be implemented anywhere except Pyongyang.

    Yet the levels of 'maximum income' being discussed are unreachable except for a tiny few - whose numbers shouldn't enable them to shout so loud.  So who are these extra voices?   And why do they speak up so loudly to defend something they don't have and never will?  The older I get the more individual people become clearer but groups of people puzzle me.
      January 10, 2017 11:07 AM MST

  • 14162
    never heard of that
      January 10, 2017 9:58 AM MST