Monthly Archives: March 2009

China Frets About US Treasury Holdings

A quote followed by some discussion:

BEIJING – China’s premier didn’t say it in so many words, but the implied warning to Washington was blunt: Don’t devalue the dollar through reckless spending.

Premier Wen Jiabao’s message is unlikely to be misunderstood at the White House, which responded by asserting there is no safer investment in the world than the United States. It is counting on Beijing to help pay for its stimulus package by buying U.S. bonds.

Link to full article: China Frets About US Treasury Holdings

    Washington’s glib response and arrogant assumption[s] underscores a deeper problem – namely, that of narcissism, frivolity and dissolution with which our culture has become affected.

    Radical spending at this juncture would be a bad idea for many reasons, not least of which include higher taxes which will hurt jobs (when corporations have less to spend on hiring new talent or retaining the talent they already have). Notwithstanding lessons from history in that government does have a role to play in restoring/maintaining economic vitality, there is a line to be drawn in the proverbial sand. This line represents the break even point in our analysis.

    The most recent ‘stimulus’ bill is worth almost a trillion dollars, much of which is comprised of pork. The difference between banking ‘bailouts’ and pork projects is thus: The former actually have investment value in that monies are due (i.e., the government is a creditor), while the latter are instances of blowing cash out the expense column. These are grants-in-aid thank you to the state of California for my education by the way. California cannot support its budgets. America cannot support the POTUS’ budget. We are planning to spend like a Sub-Saharan African nation, without any fear of God or inflation before us. Zimbabwe has an expected rate of inflation that exceeds a million percent. A million percent. This is not uncommon in that locale. People, what can I say here?

    I will say this: Big government schemes got us into the crisis in the first place; to suggest that big government is the answer to get us out defies logic. That is to say, Johnson’s great society project in the nineteen sixties could not suffice without taking FNMA and FHLMC out of the budget; these entities were thusly privatized to an extent (established as public-private partnerships, which granted capitalist gains and socialized losses). This, in turn, had the effect of taking these home mortgage giants off the government’s books and welfare rolls, public works, etc. were commensurately expanded. Moreover, in the Clinton era, chokeholds, or extortionist headlocks were put on banks to lend to unqualified borrowers by means of regulatory burdens (e.g., Affirmative Action loans with the threat of lawsuits for noncompliance). See Community Reinvestment Actwith a view toward the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

    Is it our fault the Chinese have built their entire economic model around exports to rich countries and primarily to the United States with cheap lending and a devalued currency? Of course not. Nevertheless, it would be foolish to follow an unqualified chain of presumption to the conclusion that the United States can maintain its superior bargaining position* indefinitely. It cannot.

    A foreign principality will neither challenge militarily, politically or economically the power of the United States now nor in the forseeable future. The United States, however, poses its own greatest threat. That threat is within.

    *superior bargaining position. This alludes to China’s BATNA or ‘Best Alternative to Negotiated Agreement’, which is most likely a combination, at this time, of: GBP, Euro, and Gold, none of which provide a greater degree of stability or [risk weighted] returns than the US dollar.

    See also: nathanmorton.net