China may buy a lot of debt, but the US gov't doesn't borrow money directly from them per se. Rather, they borrow money from the Federal Reserve Bank. So where does the FRB get the money to loan the Gov't? They make it out of thin air! So the FRB doesn't actually owe the money back to anyone else. So what would happen if the US gov't never pays back the debt? Nothing! The FRB might go under, but so what? They're a bunch of crooks anyway. The FRB is a private business, it's not a gov't agency. If the FRB shuts down, we can just borrow our money from a different bank.

Okay, if the FRB goes under the dollar might collapse, but then again it might not. The people that have dollars (billions of people) would still use them, so their value might stay strong. In fact, if the FRB is no long making more dollars, it would actually reduce inflation. The supply would be fixed, so as long as demand stays good, the value won't decrease.

IMO, what the Gov't should do is create a new, non-profit bank. This bank could loan money with no interest. The bank would be able to loan money to businesses too, which would drive all the for-profit loan shark banks out of business. This would REALLY boost our economy and avoid this ridiculous debt situation that the current bank system creates.

Hrench, sorry I got a little off topic there. The reason to bail out the auto makers is to prevent them from closing all their plants and putting tens of thousands of people out of work. As publicly traded corporations, the Chinese could theoretically buy up enough of their debt to own them. I don't know if the Chinese would really want to own a bunch of businesses that lose money, but they could theoretically buy them just so they could shut them down to eliminate competition. There may be laws in place to prevent this however.

The only way to make US car makers competitive with Asian makers is to lower labor cost, and the only way to do this (with labor unions around)is to continue to reduce the number of employees and replace them with robots. This will still put thousands of people out of work, but I think this may be inevitable no matter what we do.

Mostly, my 'idea' was just to illustrate the ridiculous-ness of the automakers 'borrowing' money from the US government.

Any business that runs on credit is going to be decimated in a downturn. I feel bad for the automakers and I don't want millions of people to lose their job against government subsidized foriegn manufacturers, but if they borrow from the gov. then go under anyway, where will we be? USA cars, inc? Government owning the factories--isn't that communism?

Your points about the Federal Reserve are true, but foreign purchase of US debt grows every year, with the Chinese being the biggest buyers.

http://en.wikipedia.org/wiki/Image:Estimated_ownership_of_US_Treasury_securities_by_category.gif

It looks like we were writing at the same time, but anyway, yes it's stupid to run a company on credit. The auto-makers didn't originally run like this. It was in the 70's that they started losing money and they've been getting farther in the hole ever since. The problem is, by the 70's they were already huge employeers and nobody wanted to see them fold, so we started bailing them out. They have never managed to get their failings fixed. I really have no idea how to fix them now. It may be best to let them fold rather than drop more money into them.