Important questions - i dont understand sh**

Re: Important questions - i dont understand sh**


1) I have no idea. Might have to do with the exchange rate. Someone more knowledgeable than I should come along.
2) Government bonds are what the government runs on, in addition to your taxes, they sell bonds to cover expenditures. Here is some info on government bonds: Wikipedia entry. Essentially, it's the government going into debt but giving you, or a company or even another government, a rather sound investment. The investment is considered sound because technically governments can print more $$ or raise taxes to cover costs at maturity. Government expenditures that are covered by bonds are pretty much anything but on the local level you often hear of municipal bonds being raised to fund things like road construction.
3) Couldn't find real GDP (gross domestic product) in dollars in my quickie search but this site says that current dollar GDP (the market value of the nation's output of goods and services) increased 5% last year, or $164.6 billion. If just about $165 billion is 5%, then that means total current dollar GDP is over $3 trillion. While 6 billion dollars looks like a lot to you and me, the US seems to be hardly dependent upon it, given these figures.

For item one - the only logical reason would be fluxuating exchange rates. Unless of course there is some sort of pride involved.

For two - look at government bonds like a mortgage to you. The only difference as was stated before they are much safer as the US could always print more money - however - this is likely to cause inflation. So I guess in a sense if China did own many US government bonds, they are financing the US.

Item 3 - don't know much about the drug money and its effect on the economy.

Thanks a lot for the replies, i think i understand a couple of things better now, especially concerning govt bonds.

I hope someone will be able to answer #1.


Also, i have to add a correction to #3: the estimate for the amout of drug money entering US economy was "roughly half of 1.5 trillion dollars a year"

so it'd be more or less 700 - 800 billion dollars a year.

Anyone knows how that affects the economy?

Basically i think it means more money in the banks, since most of this money enters the US economy through them, but then how it is used, i dont know.