Jolt of reality
For all the talk we do around here about our unsustainable Empire of Debt, certain events are still startling. Not surprising, but startling. Take, for instance, the sentence that greeted me when I opened my morning e-mail briefing from the Financial Times:
China urged the United States to spare no effort to stabilise its economy and financial markets to help avert a global recession
I mean, really: For an older Gen-X’er who came of age during Ronald Reagan’s “Morning in America,” whose twentysomething salad days were the era of the “sole superpower,” this is jarring stuff indeed, no matter how much awareness I had on an intellectual level that it was all hokum. Seriously, the headlines I’ve been accustomed to seeing my whole adult life have been about the United States “urging” other countries to “spare no effort” to do such-and-such.
And then you bore into the meat of the story and you see a Chinese leader talking about the need for Washington to “guarantee the safety of China’s assets and investments in the US.” Heck, the whole last century, going back to the days of the United Fruit Company, has been about Washington telling other governments to “guarantee the safety” of American assets and investments in their countries.
And there’s more. The governor of China’s central bank says, “Over-consumption and a high reliance on credit is the cause of the US financial crisis. As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.” And how many times have the likes of Robert Rubin and Lawrence Summers, through their intermediaries at the World Bank and International Monetary Fund, delivered this same lecture to countless third-world kleptocrats?
And Hank Paulson actually thinks he has a leg to stand on in urging the Chinese to keep goosing the yuan’s value against the dollar, if Beijing doesn’t believe that to be in China’s interests?
Again, none of this is surprising to those of us aware that China is now the biggest foreign holder of U.S. Treasuries. None of it is surprising to those of us who know that, well, as the Chinese central banker said, Americans are addicted to consumption and debt.
But it’s still a startling thing to see. The shoe is on the other foot.
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It doesn’t matter. Never before was the debtor also the “largest owner of nuclear weapons”. Our creditors can whine all they want, but he who has the biggest stick in the playground makes the rules. All those other countries we lectured were pissant petty wannabe kingdoms that would be squashed if we got pissed off. What is China gonna do, really? Sell to Europe who is falling faster than the USA? The whole “China is going to tell the USA what to do” argument is baloney, they aint gonna do a damn thing unless they want to kick their precious ‘growth rate’ over the cliff and right into a civil war.
Comment on December 4, 2008 @ 1:03 pm
Jeff,
Good points. But the Chinese don’t need to move quickly, and in fact can’t move quickly. This is a game that will be played out over decades. And despite our nukes the dollar is going to lose reserve currency status eventually. Maybe not this decade, but in the next one.
Comment on December 4, 2008 @ 1:32 pm
Jeff,
What if China moves on Taiwan and economically blackmails us (by dumping their treasuries) into a non-response?
Comment on December 4, 2008 @ 2:03 pm
How much easier could it be to just simply pay the chinese everything they are owed ? Print the money !!! Trillions and trillions ! Load it onto the same cargo ships that brought over all the sneakers and electronic toys. Park the ships full of newly printed money in Shanghai and say “ok, here, now we are even!” Hahahahah! Oh, yeah, that’s what they are going to do anyway. But rather by electronic bank transfer. Hey, since China is now the world’s largest gold producer, maybe they’ll trade gold for some more monopoly money ? Hahaha! Some people never learn !!!
Comment on December 4, 2008 @ 2:13 pm
Aren’t there a lot of U.S. company’s factories over in China? Can’t the Chiniess just take over ownership of those factories and produce goods for their public instead of the U.S.?
I think the U.S. has less bargining power then we assume.
Comment on December 4, 2008 @ 2:31 pm
Ah, but if the Chinese attack Taiwan, wouldnt that be our excuse to freeze Chinese assets in the US–all of those treasuries and agencies? Who would blink first? Our huge debt would have some leverage if the Chinese were not already so deep in contributions to our political parties.
Comment on December 4, 2008 @ 2:34 pm
Financial assets pale in comparison to tangible assets like factories. I still think that we would have the short end of the stick.
Comment on December 4, 2008 @ 3:38 pm
Jeff. The nukes have no use. The bottom line is integrity in relations. We are bankrupt, as we have no integrity. We have become a nation of liers, theives, and fools, and the rest of the world realizes that. “Big Stick”, get real, nukes are not a big stick, rather they are the messenger of doom for us all. We use them, we die.
Comment on December 4, 2008 @ 6:46 pm
China would lose a war with Taiwan in about three hours. You need to move an army to Taiwan across more than a hundred miles of water and more like two hundred miles, capture a beach, capture a supply airport, capture a sea port, defend at least two of these, and then move on the rest of the island.
And then spend the next year rebuilding China’s power, communications, irrigation, tap water, sewage treatment, gas, oil, railroad, and highway networks after the Taiwanese counterattack. China has very acurate knowledge of Taiwan’s capabilities in this respect and has already announced that they will go nuclear if Taiwan attacks them first.
Assuming that Taiwan doesn’t have atomic, biological, or chemical weapons, because if they do, your war is already over.
Face it, nukes and RPVs are making war suicide for the attacker. We are only surviving in Iraq because we are fighting five million peasants with no foreign support and damned little domestic support. Most of the people of Iraq just wish someone would win so that things would quiet down. Or we would have gone home with our tails between our legs long ago.
Comment on December 4, 2008 @ 6:49 pm
Hell no ! The Chinese would win. Because there are so many of them that they could march into the ocean like ants until the there was a pile deep enough to provide a land bridge for the rest to march across all the way to Taiwan.
Comment on December 5, 2008 @ 3:52 am
The Chinese could certainly withstand an economic war better than we can! Most of their current elites of China are only about two generations from having lived off of the land. Much of the rest of China still does! They are a Communist nation under totalitarian rule.
How many of us can survive off of the land? How many of us have EVER killed what we eat? The American people who used to pride themselves on being self-reliant, the Free and the Brave - are now the sensitive people of political correctness. We’re largely a foolish, silly people now. Soft. (present company excepted - I’m sure.)
We’re on the verge of complete financial collapse as is - we do not want economic war with China at this point I can assure you.
Comment on December 5, 2008 @ 11:44 am
we are all doomed…..DOOOOOOMED!!!!
Even the chinese. Their unemployment rate in the urban areas is approaching 14 percent. In the countryside they are still scratching a living out of the ground like peasants a thousand years ago. The China story is very fragile. In an economic war, the Chinese die first. They are not a cohesive nation, the communist party has less respect and authority than our government, and it’s orders are routinely ignored in the periphery. I’m confident the Chinese government won’t survive a depression, but we have survived one already, and strangely enough we have the most respected currency and the senior central bank, exports are not a major part of our economy,and we are well diversified with plenty of natural resources and great infrastructure when compared to China (outside of a few major cities where there is great infrastructure, but their whole country has less railroad tracks than we had at the close of the civil war). We are doomed, but they are doomed first and will never dump treasuries or threaten us economically because our financial leaders may be evil and manipulative, but they are smart enough to know the chinese have a weak hand, and the chinese are smart enough to know they have a weak hand also
Comment on December 5, 2008 @ 1:26 pm
If the neo-lib commies dump T bills both sides loose: aka the mexican standoff.Jeff and his mates Dick and George should realize Tom Clancy is a NOVELIST.He writes STORYS.
Comment on December 5, 2008 @ 4:13 pm