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News & ArtsMonday, November 23, 2009
Economy America Owes/Owns a Big Debt to China
Posted by Charles Mudede on Mon, Nov 23, 2009 at 8:00 AM
From The Nation:
As Barack Obama touched down in China, the American press seemed to settle on a single story line. The president, wrote the New York Times, will be "assuming the role of profligate spender coming to pay his respects to his banker." And the Wall Street Journal highlighted "China's Blunt Talk for Obama," about US economic policy and the "nervousness" expressed by Chinese leaders that "huge U.S. budget deficits will weaken the dollar and slash the value of China's massive foreign-currency holdings."Not so fast. There is one more version, a Zimbabwean version, or a least one that my father, who was an economist for the Ministry of Industry and Technology (1982 to 1988), told me: "If you owe the bank $10,000, you have a problem. If you owe the bank $10,000,000, the bank has a problem." China has the problem, not America.
The karmic symmetry of this state of affairs makes for an appealing fable. The once mighty United States, which for decades used the IMF to impose its will on the domestic policies of developing countries across the globe, is brought low by its profligacy and forced to beg sufferance from the miserly Chinese.
But just a few days here in Shanghai (on a trip sponsored by the China-United States Exchange Association) has convinced me it's bullshit and the Chinese know it.
"There's an old Chinese saying," Yang Jiemian, president of the Shanghai Institutes for International Studies, told me. "If you borrow a hundred dollars, you are borrower; if you borrow a million dollars, you are not borrower." There's an English version of this, which is a bit zippier—"When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank"—and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars...
3
yes, as usual totally wrong.
To say we don't have a problem in owing bazillions wow I guess our days of looking like Argentina are coming soon. The intelligentsia [sic] urban hipster class, the lefties, etc. can't figure out that money is real and if it's not paid back you can default, or have massive inflation, or enact draconian cuts to all programs.
This post takes it a step further, in its lunacy, suggesting that it's better to be America which is failing to educate and churn out engineers, which is dropping in manufacturing, which isn't building infrastructure everywhere and which isn't growing, than China, which is garnering ever more of the productive capacity of the world ("the means of production" ....any real Marxist would focus on that....) and growing at about 6 percent and heavily investing in all manner of infrastructure (social capital for the capitalist class, to any real Marxist; setting the stage for future economic growth.....).
If owing money is so good maybe one day we can be like Argentina and actually default!
BTW, didja know in 1890 Argentina was on par economically with the USA?
Furthering our smart and brilliant future, we not only have Glenn Becks misinforming us but liberal pseudomarxists telling us it's cool to owe bazillions.
Wow, let's all go out and get teaser rate loans again, too.
To say we don't have a problem in owing bazillions wow I guess our days of looking like Argentina are coming soon. The intelligentsia [sic] urban hipster class, the lefties, etc. can't figure out that money is real and if it's not paid back you can default, or have massive inflation, or enact draconian cuts to all programs.
This post takes it a step further, in its lunacy, suggesting that it's better to be America which is failing to educate and churn out engineers, which is dropping in manufacturing, which isn't building infrastructure everywhere and which isn't growing, than China, which is garnering ever more of the productive capacity of the world ("the means of production" ....any real Marxist would focus on that....) and growing at about 6 percent and heavily investing in all manner of infrastructure (social capital for the capitalist class, to any real Marxist; setting the stage for future economic growth.....).
If owing money is so good maybe one day we can be like Argentina and actually default!
BTW, didja know in 1890 Argentina was on par economically with the USA?
Furthering our smart and brilliant future, we not only have Glenn Becks misinforming us but liberal pseudomarxists telling us it's cool to owe bazillions.
Wow, let's all go out and get teaser rate loans again, too.
4
You should have attached the "cold open clip' from this weekend's Saturday Night Live, with Chinese President Hu Jintao lecturing Obama (also interesting for having white actors play our black President, China's President and his translator):
http://www.hulu.com/watch/110317/saturda…
http://www.hulu.com/watch/110317/saturda…
5
Well said. This is the exact point I have been trying to make when people crow about how the Chinese have us over a barrel.
6
Charles finally got one right. Plus if you invest in dollars you also don't want to see the dollar crash. China will bail us out.
Then we have to slash spending in this country or we gonna go down the toilet.....ooops, forget, this is SLOG: Next we have to raise taxes on the middle class to pay for all the entitlement programs!
Thank god I made my retirement the old fashioned way: I inherited it.
Then we have to slash spending in this country or we gonna go down the toilet.....ooops, forget, this is SLOG: Next we have to raise taxes on the middle class to pay for all the entitlement programs!
Thank god I made my retirement the old fashioned way: I inherited it.
7
It is true that we are China's "too big to fail" problem but that doesn't mean they won't start taking names and kicking ass like the Federal government pretended to do with the Wall Street bailout.
Will China start telling us how much we can pay our CEO/President?
It would be rich irony...
Will China start telling us how much we can pay our CEO/President?
It would be rich irony...
8
There is also the fact that these are not exactly demand notes.
When it comes right down to it, China would be hurt much more by us not buying their products then them not buying our bonds. If China stopped buying our bonds there would still be sufficient demand for them, we would just see rates go up a bit. If we stopped buying their products they would have a revolution.
@3 Overbuilding manufacturing capacity and failing to develop an innovative and flexible economy is not exactly the path to success. Just ask the Soviet Union.
When it comes right down to it, China would be hurt much more by us not buying their products then them not buying our bonds. If China stopped buying our bonds there would still be sufficient demand for them, we would just see rates go up a bit. If we stopped buying their products they would have a revolution.
@3 Overbuilding manufacturing capacity and failing to develop an innovative and flexible economy is not exactly the path to success. Just ask the Soviet Union.
10
By the way one of the parts of being a reserve currency is actually having to create reserves (e.g. bonds). There is an interesting connection between Clinton balancing the budget and the debt bubble. As bonds became scarce investors went to the next best, and ostensibly safe, dollar based asset, mortgage backed securities.
11
Thanks, Charles, for a good post. Some of you other folks need to understand that there would be effectively no negative implications if we were to default on all these loans from China. There isn't a Goddamned thing they could do about it. Too big to fail indeed.
15
@3: I love how conservatives all the sudden care about deficits. Fortunately, those of us who aren't amnesiacs can look back on eight uninterrupted years of conservatives swearing that deficits don't matter.
Whatever the truth is, we certainly won't be looking at your bundle of talking points to discern it. You people just repeat what your masters tell you to.
Whatever the truth is, we certainly won't be looking at your bundle of talking points to discern it. You people just repeat what your masters tell you to.
16
It's true. James Clavell had a paranoid Soviet spy plotline in Tai-Pan in which the Soviet Union does exactly that to the West. Keep borrowing and borrowing and borrowing, and then default. China will probably have to end up buying extremely low yield, short term debt (t-bills) to finance our repayment of their higher yield, long term t-bonds. It could even be at a loss, but it'll work nicely for us.
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