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 ...
Hooray! We’re “too big to fail”.
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.
Is this the financial equivalent of “mutually assured destruction”?
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.
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 ).
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.
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. =.=
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.
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.
They’re shipping us goods and we’re shipping them green pieces of paper.
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?
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).
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. =.=
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.
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?
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.
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.
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!
Baloney. The Chinese have already dumped much of it and will dump the rest in due time.
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.