From the Heritage Foundation

Further, China is not America�s banker, as many people believe. President Obama�s stimulus package was bad policy, but the notion that China is now funding our economy as a result is a fallacy.

7% is still a lot of money though.

Why China is Not an Economic Threat to the United States

As I understannd it, we sell our debts as bonds with a maturity date. So it's not like China could call all our debt at once or anything - right? All they can do is wait for the maturity date.

Yep.

They can turn around and sell them on the open market, but they cannot force a "call".

You got me there. I keep hearing that China owns us...they could call in our debt....blah, blah, blah.

For me, this article just refutes that notion ....private property holdings notwithstanding.

Also, I was trying to find it, but I'd heard that part of trading tariffs to China included them paying some of the interest on the National Debt.

Anyone out there know if that's true or not?

One word.
Taiwan
They want it

The can't call the debt which if they could would be a bad thing. To us (I believe) the worse thing will happen when they refuse to buy it to begin with. The morons in DC will just take more - rather than cut spending.

My God, is this what passes for an informative article at the Heritage Foundation?

I like how they mention that China grows at the expense of others but offer up no solutions... hell they don't even admit that this is a problem let alone that action should be taken to change course.

Fact is America is the richest country on the planet but we are bleeding capital like a stuck hawg. Real capital. Human expertise, industrial might, manufacturing capacity, supply chains. The stuff that takes raw materials and changes it into the products that make 21st century life possible.

China practices trade as a zero sum gain. They tilt the playing field in ways that put American workers at a distinct disadvantage. Ways that are considered unethical and harmful by all trade groups. This is a problem. It is THE problem that brought America to the brink of disaster and has China glowing red hot and ready to explode like a Roman candle.

Chronic unbalanced trade is a dynasty breaker, an empire ender. It ends in poverty, bankruptcy, and tears. In this respect Barack Obama is more of the same complacent, free trading, psuedo-libertarian idiocy that we have grown accustomed to in the last few decades.

I'd like to have the chance once in my lifetime to vote for an America first candidate.

Will

Exactly, and well said.

Feeling feisty this afternoon. :p

And watching WVU get spanked on national TV by St. Johns ain't helping me any, I can tell you that.

Will

It's not that China alone could cause a "run" on the FRN$, it's that they could precipitate a run by all holder's as they scramble to get out before they lose all purchasing power. A self feeding cycle.

The other problem becomes the lack of purchasers on future sales. If the largest purchasers such as the Chinese and Japanese refuse to buy any more of our paper-which they seem to be doing-who will? The Federal Reserve. That's monetization, and that is highly inflationary.

The reason that we haven't seen the results of the current monetization as price inflation across the board is because the Fed is paying the banks interest to keep the money as excess reserves on account at the Fed, and the multiplier effect hasn't occurred. When this ends, and the banks start to put this money into circulation looking for higher yield, that's when the game becomes interesting. If the Fed tries to "soak up" or buy back this excess liquidity, it must sell the collateral which it has taken in to do this. Since most of the collateral is FNM/FRE mortgage bonds of questionable value, this may be problematic. The inability to get 100% of their "worth" on the market could cause a Fed insolvency crisis.

It's a Scylla and Charybdis moment for the Fed, and our financial system, with no good options.

Good points Mike.

Doug Noland has had some wonderful commentary the last few months on monetary flows and how the actions of different sovereign banks is distorting these global economies. From what I can read we have an amazing amount of debt centered in short term treasuries. Maybe as much as 50% rolling over every 3 to 5 years. How to step off this bat out of hell without crashing is on a lot of minds nowadays. As it stands right now China has stopped buying but the Fed has freed up others to buy by taking MBS and other frozen assets off their hands. Often at horribly overpriced levels.

That is supposed to end in the coming months. I am unconvinced. I think you will see the agencies have to step in and buy practically all MBS to keep the economy from imploding again.

Long winded way of saying that there is a hell of a lot that can go wrong when you are addicted to debt, have a quick turnover time period on huge debt levels, and cannot really afford to pay realistic interest rates on it.

The forces of deflation and inflation are building across the board. 2 1/2 years in and we have done nothing but stopper the dam on both. I don't know how this ends TBH. :p

Will

It will not end well. All of this big talk the Fed is making about removing support from the MBS market is worth doodly squat.

As a matter of fact, the WaPo had a story yesterday that quoted Fed officials as backpedaling on their end to MBS purchases on 31Mar, and stating that "market conditions" could influence that decision.

I'm sure that it will. QE to infinity is the plan, as they have no other choice unless they're willing to crater the entire economy overnight. I'm not saying that I agree with them, as IMO all they're doing is postponing the inevitable and destroying the currency while doing so, but from their viewpoint they have no other options.

If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem. J. Paul Getty

Rather than fret about what Red China might do, ask yourself: Who has whom by the ears?

Just some thoughts.

Forget it, ain't gonna happen.....

China has been dumping dollars by buying oil, gas, gold, basic materials etc....

They are using dollars for all of these deals, not their currency....get it ?????

The last thing they want is to tank the dollar. They are on a spending spree using dollars.

Pretty slick eh ? They get to dump dollars without tanking the dollars value.

Watch what happens.....India front ran them when the IMF wanted to sell 200 tons of gold at $1040.

The Chinese were PO'd and no doubt want to save face by buying the next 200 ton sale at that price or better.

Why else do you think they let the price of gold fall ? Yes, you heard that right, they are in control of the price of gold, not the CRIMEX swindlers.....

Wach what happens to the price of gold when the next 200 ton IMF gold sale is announced.......

There is a floor on the price of gold, and the Chinese control it.

Later,

Tony

Not if the bank can use that $100 Million as collateral to buy hard assets that it needs. The Chinese have been using their US Treasury reserves to purchase mines and other commodities that they need to keep their infrastructure build out going. They have been reducing dramatically their purchase of US debt instruments. The lack of other buyers has forced the Fed to become the purchaser of last resort, especially since the politicians in DC cannot seem to get their fiscal house under some sort of control.

The other thing to consider would be that the effect of the ChiComs unloading their Treasury holdings might hurt their reserves and their central bank, but would have minimal effect on their real economy. Underestimating their willingness to sacrifice and endure pain for the achievement of their national goals has and will cost the USA much. It already has if you consider the loss of our manufacturing base to them to be significant. I do.

Right on! Combine that with China and Japan dumping their holdings and you have the US as we know it turning belly up!

That's the problem. The FR, and a lot of major corporations don't give a damn about America. They have no allegiance other than to the money they suck out of our country. No matter who you elect, they will be ground down to a subservient nub, paid off, and silenced.

you would also have the generals and the millionaire new class in China going belly up, which is definitely not their national goal. nor is damaging their best customer, without whom their manufacturing sector tanks.

which is why talk about China dumping its US debt pretty far fetched.

We're only 18% of their total export market, and since the downturn we've stopped importing quite a bit, thus their reluctance to finance our debts-the end of mercantilism, as it were.

They are in a maximum effort to encourage their middle class, who number 330 million, to increase their consumption, and it seems to be working. They are also increasing their trade agreements with other countries and have replaced us as a major trade partner with countries such as Brazil and Saudi Arabia. They import more oil from the Saudi's than we do.

To make a blanket statement that they won't unload our debt because they need us is to ignore these major shifts in trade flows and policy. I think it also underestimates just how much pain that they are willing to endure in order to eliminate our dominance both economically and militarily when they feel the need to do so. When our usefulness as a market and a source of technology ends, so will the need to continue both holding and buying our debt. I think we're about there.

so you're suggesting that they'd deliberately trash 18% of their export sector for...what, spite? surely not.


nor would the nomeklatura deeply and personally invested in the US economy do any such thing.

aww just put it on Walmart's monthly tab.. they are sending so much money to China, they probably won't even notice it...

their will to diminish the U.S. as a major power both militarily and economically ......IT IS CALLED GREED FOR POWER AT ALL COSTS<>>
they don't give a dam they will control with largest population ,largest economy ,largest ARMY,largest need for food,water ,and space..open your eyes.
and look..

Spite? No. To remove us as an impediment to their ability to project power and operate as they wish in the Western Pacific and the ME, yes, very much so. Especially when they see our government spending money and incurring debt in quantities that it will never be able to pay back, much less service. That's a big clue to anyone that it's time to unload their US$ holdings while it's still worth something, especially to those that have large quantities of said holdings. And they are unloading them. They're using them to purchase commodities and insure supplies of same. I don't think that they're going to be holding the bag when the music stops; that privilege is going to be left to the US citizenry.

I think you overlook the extent of the power class's relationships to the US and its economy. My kids' classes are full of the children of the Chinese elite...they're not spending 40K a year to send their kids to school here so they can destroy the US economy. They have their own money invested here. They keep homes here. Without the US export economy, or in a world economy destabilized by a US financial crisis which would threaten all their export business, as well as their public and private investments.....they are dead.

Quite likely physically as well as financially, since the Chinese people could turn ugly very quickly if their fairly new found prosperity collapsed as a result of an obviously stupid government policy.

The G7 are having a hushed meeting in the high Arctic of Canada because of the Obama attack on the banking system and his other so called solutions which will end up causing great grief to the rest of the banks of the world. His policies and Brenake's are causing a ripple effect throughout the world. The spending out of crisis theory will not work, Japan has tried that for over 20 years and it don't work. His other comments about penalizing the savers is also a 2 faced remark since on one hand they are trying to keep a lid on hyper inflation and controlling the interest rates is the only way. So if you give savers more interest you start a viscious cycle that will affect all economies around the world.

Quite possibly I do, as I have no relationships of any sort with them. I have only their public statements and their actions by which to judge intent.

I hear Wen Jibao and Xie Xuren when they speak of replacing the US$ as the reserve currency and are moving to give the Yuan regional dominance; I hear their statements about being unwilling to finance the ever expanding US debt; I see them doing trade agreements and using mutual currency swaps to avoid using dollars; I see them using their dollar holdings as collateral for goods and companies; I see them decreasing dramatically the amounts of US debt securities that they purchase; I see them gaining ground here in the states with duty free zones and minimal inspections of their warehousing facilities as well as controlling the entire Panama Canal; I hear of cyber attacks against our networks, both civil and military, that originate in their country; I read of technology transfers and outright industrial espionage to steal our ideas.

I read and hear all of these and more, and they do not seem to be the actions of a country that wishes us well, they seem more in keeping with someone who sees us as the enemy, and are using our own greed and short sightedness to gain advantage.

I also understand that they are firm believers in Mao's precept that all power flows from the barrel of a gun, and as long as they control the Army, they have no concerns about a rebellion amongst the people no matter how bad that it gets there. They have proven this at least three times in the last 60 years, so I place little creedence in their fear of a popular revolt as long as the Army is fed. If that fails, then I'm sure that they will use their US real estate and US based savings to flee from the hell that they have created. If it comes to that they may have jumped from the frying pan, and into the fire, depending upon how things turn out here.

the priority fight between the Marxist dream of a world- dominating workers regime and the capitalist dream of being velly velly lich is over....getting rich won, hands down. It is now the driving force in China. Whatever facilitates the accumulation of national and personal wealth is what people insist on. And it also coincides with the wishes of the nomeklatura, who are mostly big rich, and the PLA, which is also into business more than fighting.

Not saying they have any particular love for the US, but they have a pretty obvious disincentive to pursue policies which harm our economy and don't even help theirs.


The PLA is a conscript army and outside its specops units ain't all that. Although they look nice:



The current leadership group pursues consensus...the last thing they want is another Tienanmen Square. which looks pretty peaceful these days:




It's all about the money. Our economy is too important to theirs for them to benefit by destroying ours.

Not that we'll ever be BFFs:




maybe if more people would just Zen out:



In summary, the Chinese control far less of our paper than most people think, they are not really able to underake any hostile action toward us with their holdings without doing dramatic damage to both their national economy and the personal wealth of the decision makers. Our economy is still far more robust and diversified than theirs, and able to weather a downturn without the civil unrest that is always close to the surface in the New China.

And I say that as a registered China expert, having spent a whole week there. And having kids with Chinese roomates for years and talking to their parents. A truly scientific study But most of this is pretty self evident, isn't it?

They have 2 options:
- wait for the maturity date and not purchase new ones
- sell them on the open market.

Open market sales are at market prices and the price might be lower than the value (which would hurt the seller).

Time to piss B-HO off. The oil companies should come out with an offer. Instead of paying taxes to the feds in cash they should offer to buy back U.S. Bonds from China, and others, and surrender them to the feds in lieu of cash. They paid 26.5 Billion in 2006, several years of that would buy back a bunch.

Of course when the Feds start selling bonds to China again, the oil companies come out and say, "We're trying to help you out of an international financial crisis, but you keep on digging in farther. It's like a high school kid with a credit card, paid by his parents, that has no limit or constraint."

B-HO and congress would be like, "Why you front me out Biotch!"

Not to me, but I suppose that we will see in the fullness of time.

Mike....I'm trying to figure out what possible financial or strategic advantages you see in China attempting to do even undertake such an effort.

Certainly you see that China needs us as much as we may need them!

Here's the problem. Yeah China gets 18% of their exports to us, which seems like a small fraction. But they have 100s of millions of people on the borderline of poverty. And they need every % they can get of our business to keep total chaos from happening. Hell, their GDP growth is DOUBLE what our is but it has to be to keep the masses in check.

This is a love-hate relationship for both sides. We buy so many cheap products from China that if the trade stopped, our inflation rate would go to about 20% in a year because we simply cannot make the same stuff that cheap. And in turn, they would literally have 100s of millions of people starving and pissed off walking the streets.

It's even worst that that, China is cooking their Growth numbers. Look the current bunch in the US are cherry picking the numbers by a wide margin. And everybody knows it. One of the Reasons the Soviet Union collapsed is that they cooked there books and we in the west thought there numbers were on the up and up and when they did collapse, it was a big surprise. China is no different. They have huge problems, sure there is a lot of money there, but they have a huge population, just to stay even they need to double economic growth every year or just about. We are in an Economic down turn, poor leadership on the part of our politicans is making it longer and deeper than it needs to be. Ok we will work our way out of it in time. We always do. Europe is in a mess, more so that us, and for the Chinese to say why we are growing hands over fiths. May not be what they say. China is going to find that they are going to need more trade than less, and in order to get it, they are going to have to open their markets rather than block it off.

I posted this the other day.

https://www.24hourcampfire.com/ubbth...ina_30_billion_square_feet_o#Post3758047

In my mind the bubble that we had in the RE market pales to what China has going on. The question is when will it pop and where to be to make the most of it when it does.

I agree, communism has been a way to unify and organize the country after centuries of hardship, exploitation, and division. Capitalism is out of the bag and there is no turning back. They have a communist political system, but have no interest in exporting it.

In 2008 I was a consultant for an alternative energy company and spent about a month total in an economic zone south of Shanghai. Most of the people were friendly, curious and very anxious to engage in conversation to practice their english. However prosperous they have become they have a long, long way to go before they reach any level of economic and social security.

What I took away from the experience was that people are the same all over. They just want to feed, clothe and educate their children. The problem is that these appetites will only grow. The Chinese are smart enough to know that today's and tomorrow's battles will be fought on the economic front. Educating my children is now more than ever a top priority.

Today's Chinese lesson; "pi jio" - beer

Bob,
I look at China being long term planners. They've been around for a very long time, and have in their history made virtually every mistake that a nation can make. I see them as using us to further their imperial dreams and to take from us anything that will help them to do so, with as few missteps along the way as they can.

It is to both their strategic and financial advantage to move manufacturing to their shores, and use wage and regulatory arbitrage to entice our manufacturers to move there.

We lose a significant portion of our manufacturing to them every year, with the effect of reducing our ability to provide good paying jobs for our population and to be able to utilize that capacity should it be necessary in the future.

It may not seem much, but think about the different manufacturers that we had in WW II who turned making seemingly insignificant things into important defense tooling. Singer Sewing Machines, Rock Ola juke boxes, small shipyards and boat makers who made the Higgins boats and PT boats; Kaiser Industries which made the Liberty ships. All of these have been killed off either by wage inflation or regulations, and the policies of the Chinese and others to use this to their advantage is well known. This is in large measure our fault, for allowing government to interfere in the marketplace, but the Chinese have also been very deliberate in insuring that their own wages and regulations are able to undercut ours at every turn.

It is to their advantage to have industries which we have discarded as being "too dirty" moved to their shores. One example of this is rare earth minerals refining. We used to both mine and refine these minerals, but regulations and wages shut it down, and now China is virtually the only source for these. They are critical for many high tech applications including military hardware, and we have successfully allowed them to monopolize it. This is just one example; there are many more.

It is also to their advantage to have the Yuan become a regional reserve currency and eventually a world reserve currency, as it then allows them to export their inflation and print as much money as they think thay can get away with, just as we have done for the last 50 years. This is a long way from becoming reality, but judging by the mismanagement of our currency and the increasing clamor from many countries around the world to have such a replacement, it isn't all that far fetched. They have already come to an agreement with the ASEAN nations to use the Yuan for regional trade, so it isn't that large a reach for inclusion of the Yuan in an SDR type vehicle, just for starters.

It is also to their advantage to hold our debt and become the "bank" if you will, for our own profligate political class. It becomes very difficult for us to make strategic decisions, when those who hold the majority of our debt and are the only ones who can buy it in the quantities needed to keep our activities running might refuse to do so if it conflicts with what they want. If, for instance, they decide that the time is right to include Taiwan in their "co prosperity sphere", and we protest too much, then dumping our debt on the market becomes a strategic advantage to them. Yes, it hurts their central bank, and it might hurt their power elite, but it will totally disrupt our financial system, and make doing much in response to their aggression impossible to carry out.

I see that China needs some things from us, but that we need them, and their money and goods much more than they need us. I also think that there are many in this country who are more rearward looking than forward looking, and see things as they were and not as they are. We, as a nation, have rested on our laurels and allowed ourselves to become convinced of our own invincibility and necessity, but have not kept the requisite policies or discipline in place for that to be true. We have moved with increasing speed towards being the classic European welfare state, with all the implications that lie with that dubious title. Whether we can turn that around and become the self reliant representative republic based on free market principles that we once were is the question. Under the current political and financial leadership it isn't looking good. The Chinese see this too, and are actively seeking alternate markets for their goods, and are building relationships that they will use to fill the vacuum left when our inability to function is apparent for all to see. If they can manipulate that time to their advantage, they will do so.

That's how I see the current state of Sino-American relations. I'm sure that others have their opinions, most of which will differ from mine.