Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

The Truth About Chinese Threats To Dump US Debt (Not Gonna Happen Unless They're Suicidal)
Business Insider ^ | 07/31/2011 | Patrick Chovanec, An American Perspective From China

Posted on 07/31/2011 12:18:03 PM PDT by SeekAndFind

With the political clash over the U.S. debt ceiling in full swing this week, I’ve been inundated with people asking variants of the same question: with U.S. in (temporary) danger of defaulting, will China, which holds at least $1.2 trillion worth of U.S. Treasuries, finally get fed up and dump its share of the U.S. national debt? It certainly sounded that way, with the official People’s Daily condemning Congress’ handling of the debt crisis as “irresponsible” and “immoral,” while Chinese diplomats urgently pressed their American counterparts for reassurance.

In fact, as I pointed out in a National Public Radio (NPR) interview on Thursday, China may well be unhappy with the situation, but unless it dramatically changes its approach to its own economy, it’s pretty much “along for the ride.” You can listen to that report, and read the text, by clicking here.

China’s growth model for the past 30 years relies, in large part, on running a trade surplus (selling more than it buys from abroad) in order to maximize capital accumulation and therefore investment at home. At the same it, it encourages inflows of foreign investment into China in order to speed up that process even further, while restricting Chinese money from flowing abroad, in all but a few controlled circumstances. The result is that foreign currency flows into China and piles up, with no outlet to flow back out again. Normally, all those excess dollars that were piling up in China would fall in value relative to the RMB, until the imbalances corrected themselves.

However, in order to keep those imbalances in place, the Chinese government intervenes to buy up all those excess dollars (and euros, and yen) itself, to keep its currency from appreciating, and accumulates them as official reserves. It has to invest those reserves somewhere

(Excerpt) Read more at businessinsider.com ...


TOPICS: Business/Economy; Foreign Affairs; Government; News/Current Events
KEYWORDS: china; debt; treasuries; usdebt

1 posted on 07/31/2011 12:18:08 PM PDT by SeekAndFind
[ Post Reply | Private Reply | View Replies]

To: SeekAndFind

Hooray! We’re “too big to fail”.


2 posted on 07/31/2011 12:20:40 PM PDT by AZLiberty (No tag today.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

Folks, Here’s the thing to keep in mind -— It’s a symbiotic financial relationship.

tWe are China’s largest customer, and since many smaller customers also settle their international trade in U.S. dollars, roughly 70% of China’s $3 trillion reserves are in dollars. In theory, it could sell some of those dollars for other currencies or for commodities, like gold or oil, but in practice, given the huge sums they are already holding, its hard for China to sell off even some of its dollars without undermining the value of what it has left.

Even if it could do that, there just aren’t any markets that are as large or liquid as the market for U.S. Treasuries, to accommodate the amounts of money we’re talking about.

Unless they want to kill their economy, they can’t just dump our dollars even if they wanted to. WE DIE, THEY DIE WITH US.


3 posted on 07/31/2011 12:20:46 PM PDT by SeekAndFind (u)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

Is this the financial equivalent of “mutually assured destruction”?


4 posted on 07/31/2011 12:21:24 PM PDT by AZLiberty (No tag today.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: AZLiberty

RE: Hooray! We’re “too big to fail”.

At this point in time and for the forseeable future, China and the U.S. are locked in a dysfunctional co-dependence.

The U.S. consumes too much and save too little, so it needs to borrow from China. China saves too much and consumes too little, so it has to lend to Americans to let them to keep buying what China produces.

That might change in the future, but that’s still far off.


5 posted on 07/31/2011 12:22:55 PM PDT by SeekAndFind (u)
[ Post Reply | Private Reply | To 2 | View Replies]

To: AZLiberty

RE: Is this the financial equivalent of “mutually assured destruction”?

That’s a good analogy except for one thing — the financial MAD is probably more likely than the nuclear MAD ( unless we change course in this country ).


6 posted on 07/31/2011 12:24:45 PM PDT by SeekAndFind (u)
[ Post Reply | Private Reply | To 4 | View Replies]

To: SeekAndFind
Typically, a vendor wants its customers to pay for the merchandise. If you're running up a tab, with no end in sight, and no clear means of paying it off -- you're not being a valued paying customer.
7 posted on 07/31/2011 12:30:06 PM PDT by USFRIENDINVICTORIA
[ Post Reply | Private Reply | To 3 | View Replies]

To: SeekAndFind

Spot on. They’re kinda in the same position as the banks that loaned all that money to people to buy houses who had no chance of repaying the loans. They aren’t any better off by foreclosing on us, and it’s going to take a long time - if ever - before they become whole again.


8 posted on 07/31/2011 12:33:08 PM PDT by bigbob
[ Post Reply | Private Reply | To 3 | View Replies]

To: SeekAndFind

No doubt, according to the faulty logic of Patrick Chovanec, China has no choice but forever keep loaning the US trillions, huh? Stuck on stupid has a new meaning apparently. =.=


9 posted on 07/31/2011 12:33:26 PM PDT by cranked
[ Post Reply | Private Reply | To 1 | View Replies]

To: AZLiberty

Mutually assured ECONOMIC destruction....the thinking is a half truth but is born out of the negatives of continued globalization and economic interdependence. Nation-states still can make independent [economic or otherwise] decisions despite such an interdependence. In other words, the economic domino effect can be halted.


10 posted on 07/31/2011 12:37:07 PM PDT by cranked
[ Post Reply | Private Reply | To 4 | View Replies]

To: SeekAndFind; AZLiberty; USFRIENDINVICTORIA; bigbob; cranked

So despite all the speculation about the chicoms dumping dollars for gold, oil, commodities, etc.

Or for Little Red Riding Hood’s “basket of currencies”, they can only convert so much before killing the value of what’s remaining.

So we’re stuck with each other, handcuffed together on Thelma and Louise’s Cadillac.


11 posted on 07/31/2011 12:46:15 PM PDT by sinanju
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

They’re shipping us goods and we’re shipping them green pieces of paper.


12 posted on 07/31/2011 12:52:23 PM PDT by Mr Ramsbotham (Laws against sodomy are honored in the breech.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

Unless they’re suicidal, or, like TEA Party congressmen, devoted to principle over party, and care for their country more than their comfort, hayna?
Or no?


13 posted on 07/31/2011 12:57:21 PM PDT by flowerplough (Pelosi on Republicans: "They want to destroy food safety, clean air, clean water, ...")
[ Post Reply | Private Reply | To 1 | View Replies]

To: cranked

No doubt, according to the faulty logic of Patrick Chovanec, China has no choice but forever keep loaning the US trillions, huh? Stuck on stupid has a new meaning apparently. =.=
Won't last forever. There's a reason why Germany "crossed the rubicon" as far as the euro's concerned (that is, despite their elites' ideological adherence to the concept)—China's been diversifying away from the dollar towards the euro, and not only them but lots of other countries. The fewer people in the USA that can afford to keep buying Chinese-made goods, the more new markets China will seek out, as well (something they've been doing non-stop).
14 posted on 07/31/2011 1:21:39 PM PDT by Olog-hai
[ Post Reply | Private Reply | To 9 | View Replies]

To: SeekAndFind

There are some truly insane ideas about Chinese demands for additional collateral from America.

“Project 60”, under the Republican governor of Idaho, Butch Otter, the State has sold 50 square miles south of Boise to the Chinese. Importantly, as part of the deal, an undetermined number of Chinese workers would receive permanent resident status in the US.

“The U.S. Citizenship and Immigration Service administers an immigrant investor visa program called EB-5. The program grants foreigners permanent U.S. residency in exchange for helping create U.S. jobs.”

Put simply, Idaho (and reportedly other states, as well) are offering the Chinese a way to dump their useless treasury bonds by buying ownership and domestic US production rights (by Chinese citizens) in their States.

American Falls, Idaho will soon be home to a Chinese-owned fertilizer plant. The 50 square miles south of Boise will be used to produce fertilizer to sell in the US, a purchase Idaho’s governor promises will “reinvigorate our American industrial base.”

Utah seems to be next on the list for collateral.


15 posted on 07/31/2011 1:22:53 PM PDT by yefragetuwrabrumuy
[ Post Reply | Private Reply | To 1 | View Replies]

To: yefragetuwrabrumuy

Trading this, or that state (or province) to [Name of solvent state here] used to be the subject of sardonic humour. Nothing funny about it now. Will this be the Louisiana Purchase, or the Alaska Purchase in reverse?


16 posted on 07/31/2011 1:34:29 PM PDT by USFRIENDINVICTORIA
[ Post Reply | Private Reply | To 15 | View Replies]

To: SeekAndFind

China getting out of US treasuries could be a sign they were going to move on Taiwan IMO.

Otherwise we would write the notes down to 0.0 value.


17 posted on 07/31/2011 1:46:15 PM PDT by Bobalu (He who is compassionate to the cruel will ultimately become cruel to the compassionate)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

I hope China dumps US debt. It would make it difficult to have a massive Federal government if no one would loan us money. If you want small government, you should pray that China and every other creditor is unwilling to loan us money.


18 posted on 07/31/2011 2:01:47 PM PDT by FightThePower! (Fight the powers that be!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind
I see those that think only in economic terms believe China cannot sell our notes. The pure economic thinker always overlook the political and/or social impact of their theories. We have already seen the Chinese buying the Clintons. I have heard that a majority of the California State Supreme Court is now Chinese. The Chinese are flooding the country, whole towns in Southern California are now Chinese i.e Monterey Park, South Pasadena. Vancouver, Canada is gone. Our military recently had problems buying some necessaries because we no longer could make them them and foreign countries would not sell them as the foreign countries did not approve of American policies. (Britain could not get hand grenades because they could not make them and the Swiss would not sell them.)

We will soon lose-if we have not already- our capacity to recover; as there will be few left with technical knowledge, skill and experience i.e. machinists, engineers etc. The so called "Free Trade" fanatics are helping to ruin our country. Between the imbecile elected to be President and all the hacks he brought with him plus the Free Trade fraud we are DYING AS A NATION!!!!!!! Even the economic "thinker" has to consider a partial dump by the Chinese. However, why should they dump as the Chinese are certainly one of the coalition that is conquering America and will participate in the final sack, rape and mass killings. That is the real reason why they will not dump as they are winning!

19 posted on 07/31/2011 2:22:47 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind

Baloney. The Chinese have already dumped much of it and will dump the rest in due time.


20 posted on 07/31/2011 2:44:55 PM PDT by familyop ("Plan? There ain't no plan!" --Pigkiller, "Beyond Thunderdome")
[ Post Reply | Private Reply | To 1 | View Replies]

To: AEMILIUS PAULUS
I have heard that a majority of the California State Supreme Court is now Chinese.

Nope. Currently 2 Asian and 4 Caucasian, with 1 position open. Might want to be a bit more skeptical/critical when listening again to those from whom you heard otherwise.

21 posted on 07/31/2011 2:57:00 PM PDT by dorothy ( "When injustice becomes law, resistance becomes duty." - Thomas Jefferson)
[ Post Reply | Private Reply | To 19 | View Replies]

To: dorothy

Is that counting the new appointment Liu?


22 posted on 07/31/2011 3:01:32 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
[ Post Reply | Private Reply | To 21 | View Replies]

To: SeekAndFind

I’d rather be invested in U.S. Treasuries than Chinese Railways.


23 posted on 07/31/2011 3:13:44 PM PDT by Mike Darancette (Obama, eat your GOPeas.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind
The result is that foreign currency flows into China and piles up, with no outlet to flow back out again.

China uses the surplus to build "Ghost" cities, infrastructure and aircraft carriers. Remarkable what you can do with free land, cheap/slave labor and lots of loose cash.

tick, tick, tick.

24 posted on 07/31/2011 3:24:49 PM PDT by Mike Darancette (Obama, eat your GOPeas.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: yefragetuwrabrumuy
American Falls, Idaho will soon be home to a Chinese-owned fertilizer plant. The 50 square miles south of Boise will be used to produce fertilizer to sell in the US, a purchase Idaho’s governor promises will “reinvigorate our American industrial base.”

50 sq miles for fertilizer?

I hope these companies and their employees pay their taxes and obey labor laws. I would imagine the Chinese employees will be pretty isolated so I don't they will help the local economies much other than taxes.

Or maybe this is an invasion base. Remember the scare a few decades back about the Chicoms digging into America?

25 posted on 07/31/2011 3:48:39 PM PDT by Mike Darancette (Obama, eat your GOPeas.)
[ Post Reply | Private Reply | To 15 | View Replies]

To: dorothy; AEMILIUS PAULUS

RE: I have heard that a majority of the California State Supreme Court is now Chinese.

Nope. Currently 2 Asian and 4 Caucasian, with 1 position open. Might want to be a bit more skeptical/critical when listening again to those from whom you heard otherwise.


The important question is not their ethnicity, BUT WHERE THEIR LOYALTY LIES.

If they are Caucasian but maintain loyalties like the American Taliban, John Walker Lindh, or are white but cheer our enemies like Sean Penn, then being white gives no comfort.

I’d rather have an ethnic Chinese who is loyal to America and her constitution than a white liberal traitor.


26 posted on 07/31/2011 5:35:00 PM PDT by SeekAndFind (u)
[ Post Reply | Private Reply | To 21 | View Replies]

To: SeekAndFind
I would prefer neither aliens nor white traitors.

By the way the recent appointee Liu is so far to the left that even the U. S. Senate rejected him. So you are getting an alien and a "far leftist traitor" combined. I call that more bang for your buck!

I was suprised at just how left Asiatics are. As I recall 70% voted for "The Divine One." We do not need the "Third World" giving us the law, oral, written or customary. We do not need the "Third World" governing our lives.

Granted they are warm, rich and deep. Granted they have proper relations with their families and are kind to their dogs. They will be just as good in China or wherever else they come from.

27 posted on 07/31/2011 7:03:37 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
[ Post Reply | Private Reply | To 26 | View Replies]

To: familyop

That’s what I’ve read as well. Even if they hadn’t, we’re still going to need to float more debt for a long time, and I guarantee they aren’t going to be in on the auctions.

One way or the other the rest of the world is going to cut our budget.


28 posted on 07/31/2011 7:37:45 PM PDT by Free Vulcan (Obama's hoping that we'll have nothing but chump change left when he's done.)
[ Post Reply | Private Reply | To 20 | View Replies]

To: AZLiberty
Is this the financial equivalent of “mutually assured destruction”?

Precisely, the question is, who stands to take advantage when the house of cards fall?

29 posted on 07/31/2011 7:39:47 PM PDT by dfwgator
[ Post Reply | Private Reply | To 4 | View Replies]

To: AEMILIUS PAULUS

RE: They will be just as good in China or wherever else they come from.

I am not trying to defend left wing Asiatics, but please note that there are many Asian citizens who will defend this country over the country of their ancestor’s origin (e.g. Governors Bobby Jindal or Nikki Haley). We cannot over generalize on this. We need to take each one on a case by case basis.


30 posted on 07/31/2011 8:04:23 PM PDT by SeekAndFind (u)
[ Post Reply | Private Reply | To 27 | View Replies]

To: SeekAndFind

I think it is entirely possible that either one of the ‘unthinkables’ could happen. China could make a pre-emptive sell on the Dollar. The US could default.


31 posted on 07/31/2011 8:19:34 PM PDT by wolfman
[ Post Reply | Private Reply | To 1 | View Replies]

To: SeekAndFind
I think there is one factor left out.

The Chinese government does not give one crap about its people. If it gets into a war of any kind with the U.S. (like over Taiwan), they are going to trash our currency and tell their people to go spit.

They have done it before, and they will do it again...

32 posted on 07/31/2011 9:05:45 PM PDT by ColdSteelTalon (Light is fading to shadow, and casting its shroud over all we have known...)
[ Post Reply | Private Reply | To 3 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson