by Frank James
For years there've been concerns about what would happen if the Chinese decided to sell their vast holdings of U.S. Treasury bonds which has propped up the U.S. economy.
The overriding fear has been that if the Chinese were to decide to sell a large portion of the upwards of $720 billion in Treasury bonds they hold, the U.S. would be in even more of a world of hurt than it presently is.
That's what made the remarks by the Chinese Premier Wen Jiabao's so ominous. Wen said the U.S. needed to "ensure the safety of Chinese assets." He didn't say "or else" but that seemed to be implied.
An excerpt from the Associated Press:
BEIJING (AP) -- 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. It is counting on Beijing to help pay for its stimulus package by buying U.S. bonds. China already is Washington's biggest foreign creditor, with an estimated $1 trillion in U.S. government debt. A weaker dollar would erode the value of those assets.
"Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference Friday after the closing of China's annual legislative session. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."The appeal suggested the outlines of Chinese President Hu Jintao's stance when he meets with President Barack Obama at an April 2 summit in London of the Group of 20 major economies on possible remedies for the global crisis.
Wen gave no indication whether Beijing wants changes in U.S. policy. But economists said his comments reflect fears that higher U.S. budget deficits from Washington's $787 billion stimulus package could drive down the dollar and the value of China's Treasury notes.
What's so interesting about this is that it is a shot across the bow that U.S. policymakers must now keep in mind. The Chinese have no doubt expressed such concerns privately to U.S. officials.
But now that they have expressed it so publicly, that puts more pressure on the Obama Administration than private expressions would.
National Economic Council Chairman Lawrence Summers was asked about the Chinese premier's comments today after he concluded a speech at the Brookings Institution in Washington today.
Summers responded by saying that if the Chinese premier was worried about China's holdings in U.S. Treasuries now, he would have really been concerned if the Obama Administration hadn't acted to put a large economic stimulus in place .
Here's Summers' response
MR. SUMMERS: Look, I think we've been very clear about this from the beginning. In the short run, the need is to get the economy going again and to get the private financial system working again and to reactivate those markets. And precisely because of those vicious cycles I described, that's not something that will happen automatically, simply through patience. You have to be prepared to prime the pump.And if you don't prime the pump and you allow the processes of decay and decline and deleveraging to continue, it's much more costly to do it later. It's much more -- the ultimate burdens on the federal fisc are much greater. And the loss of confidence and the ability to attract foreign capital is that much more profound. That's why, as Secretary Geithner likes to say, we've done more in weeks than is often done in the face of financial crisis in years.
And so on the one hand, I don't think there's any responsible alternative for the long run but to energetically engage to stimulate the economy and to support the financial system. On the other hand, and this is a commitment that the president has made very clear, we need to be sound stewards of the -- sound stewards of the money we invest and we need to recognize that while it is appropriate when your income is temporarily down to borrow on an abnormally high scale that once your income has returned to normal then that doesn't mean it's not okay to have any debt, but it does mean that your debts can't be rising relative to your incomes.
And that's why the president's budget has emphasized halving the budget deficit and getting the nation's finances on a sustainable basis as the economy expands.
Comments
China has only recently emerged from third world economics - a depressed life there was the norm. People in America have elevated their comfort level such that any sacrifice seems horrific. .................
http://thefiresidepost.com/2008/11/20/a-nickle-for-bread-but-no-one-has-a-nickle/
Posted by: Ohg Rea Tone | March 13, 2009 2:56 PM
Hey Republicans ...YOU Did This... Remember?
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http://s48.photobucket.com/albums/f241/buhdydharma/?action=view¤t=San_Diego_house_on_fire.jpg
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There are different theories on parenting. Especially when it comes to little children throwing tantrums. Especially when it comes to little children throwing tantrums....in the middle of a burning house.
That the Repuglicans lit on fire.
And then threw gasoline on.
And now are standing over the blaze with more buckets of (drill baby drill) gasoline.
A quiet little reminder for our esteemed Republican colleagues in the House and Senate....
REPUGLICANS, YOU LIT THIS FIRE!
And here is a hint, REAL PEOPLE are suffering....because of you.
Throwing more tax cut fuel on it wont put it out. Cutting funds for contraception won't put it out. And stamping your widdle feets and obstructing every move that the people who DIDN'T light the fire are making to put YOUR fire out...won't put it out.
There are two cliches at war here, guess which one will win out in the end:
Give a mouse a cookie, and he will just want a glass of milk.
vs.
Give them enough rope and they will hang themselves.
NO ONE, but you, has forgotten how we got to this point...in two wars, our standing in the world damaged nearly beyond repair and standing in the flaming soon to be ruins of what used to be our economy. No one has forgotten that it was you who brought us to this point. Or that you have gotten us to this point while laughing at, mocking, denigrating and calling people traitors....the same people who now have to clean up the steaming pile of elephant poop that YOU deposited in the middle of the living room...of our burning house.
The time when you could blame all of your mistakes on the Dems and have the public and the pundits buy it is over. No one is buying it. Ok, I'm wrong, the stupidest factions of the Village and the punditocracy are still buying it....because they helped you light the fire.
But know this....President Obama IS just giving you enough rope to hang yourself. And, thank you, you are gleefully jumping up on the horse and fitting the noose over your own head. You make demand after demand, and each demand is grudgingly granted, as a nice, kind liberal guiltified parent gives into a child's tantrum, over and over again.....until that parent finally realizes that that just doesn't work. And is FORCED to try something else, something less.....nice.
Soon it will be apparent to all sane people that being nice to you just doesn't work, that every time we give in to you, your unquenchable three year old egos just take that as a signal of weakness and demand more. With every petulant demand, with every hold you put on a nominee, with every little nit you pick, with every foot stomp, with every BLATANT obstructionist tactic you use to keep us from cleaning up YOUR mess and putting out YOUR fire...you reveal yourself as the petulant, vengeful, idiotic spoiled little children you are. Obama is giving you everything you want....and yet all you want is...more. Do you really think that the misplaced kindness and tolerance that is being extended to you will last, even as you continue to roll around on the floor of our burning house and try to scream at the top of your tiny lungs and hold your breath til you turn blue at the same time....as is typical of your hypocrisy and failed drama-queenish stupidity?
You failed. Your stupid Reganomics trickle-down ideology failed. Your economic theories failed, your foreign policy failed, your theocratic social policies failed and your theories of governing failed. Everyone knows this....except...apparently....you.
The definition of insanity is doing the same thing over and over again...as you have with your trickle down bullshit...and expecting different results. Everything you are screaming for is EXACTLY what got us in to this mess. The fact that you think that doing MORE of the same will fix the mess YOU made just proves your true character and intelligence. You are exposing yourself, again, as insane ideologues living in a delusional land where things that have never, ever worked....suddenly start to work, because you held your breath long enough. You are proving to the entire nation and the world that you are insane. Insane little children, throwing a tantrum in the middle of a house on fire....a fire that, I remind you once again...YOU started.
And so in conclusion I wish to say....thank you. Thank you from Democrats everywhere. We have been fighting your class warrior, hate based, petulant, childish, ineffective and incompetent policies and memes for decades now, trying to destroy your policies and assorted bullshit so that our country and world can move into the 21st century as a prosperous people who value equality freedom and justice. Now, finally, you are succeeding in destroying yourself in a such thoroughly transparent and complete way that there is only one thing that we can do to help you...
Posted by: Inconvenient Facts | March 13, 2009 3:12 PM
I always wonder why any sane person would give Boehner, McConnell or any of the Republican congresscritters the time of day.
Tax cuts and deregulation are the 2 primary causes of our ongoing economic crisis. The GOP is like a compulsive gambler who recommends that moving to Las Vegas will solve the family's financial woes.
The Republicans keep whining about how corporations have a higher tax rate than anyone else. What they fail to mention is the corporate shenanigans that result in their paying NO taxes...moving offshore and taking advantage of a host of other loopholes that allow them to function without contributing a dime to society.
Idiot Repubs....all of them.
Posted by: Hulk Smash! | March 13, 2009 3:34 PM
The Chinese suppliers of the things that we consume will continue to accept these freshly printed currencies (T-Bills, Bonds, etc.) that they earned in exchange for their products that they manufactured for our consumption only as long as they are allowed to purchase title to real estate, forests, industries, breweries, hotels, factories, casinos, financial institutions and title to everything else of value that is located in the USA with these freshly printed paper currencies. Some government sources estimate that the title to 25% of our titled property and businesses in the USA are now foreign owned http://www.economyincrisis.org/content/ownership
This is selling of our children's legacy to foreign owners, and the US government calls it "Investing in America". This is sort-of like selling our body parts to keep from working!!!!!
The buying power of any paper currency determines its value or exchange rate. The USA government stopped exchanging gold for our currency in 1972. US government does not go to banks to borrow money. The US government just buys a lots of paper and prints up a bunch of new paper money, T-Bills, Bonds, and other similar paper securities then deposit these financial instruments into banks (actually the Federal Reserve) to cover checks issued to pay for government payrolls, wars, pork barrel projects, negative balance of trade, failed business bailouts, entitlements, government grants, social schemes, new infrastructure, wealth re-distribution, mental health, imported consumer goods, police, education, make-work schemes, and etc. This accelerated printing will cause massive inflation to the point that it will take a whole day's wages to buy one loaf of bread.
It is not the foreign manufacturer's fault that this economic condition exists. We created this condition ourselves. We purposefully destroyed most of our industries and fired all of the employees that were located in the US for various reasons. Why should we work and make the things that we consume as long we can get people in other countries to work to make these things for our consumption? We have paid them with freshly printed-paper currencies and other types of freshly printed-paper securities (Junk Bonds). There is (probably) a limit to the amount of paper dollars that the foreign country manufacturing people and the foreign country raw material supplying people will continue to accept in payment. Our Stupid Legislators of both political parties, Ignorant Government Employees, Self Serving Corporate Managers, Greedy Unions, Wall Street Financial Genius Criminals, Enron and Arthur Anderson type Master Criminals, NAFTA, EPA, WTO, and OSHA, just to name a few, have created this situation.
When the time comes that people in foreign nations no longer accept our freshly dollars to pay for our imported products (and our government activities), we will be in deep trouble with no quick way out. We must act now while we can still buy foreign made materials and foreign made equipment for the re-industrialization of the USA with the remaining purchasing power of the dollar before we have redeemed all of the exported currency for title to the remaining existing US assets. The buying power of the dollar will become nil when there is nothing left for the foreigners to buy with the dollars that they earned by making our consumer goods.
The option is for US citizens to work for cheaper wages than the foreigners. It is going to take at least several decades to re-create the US industrial bases that we destroyed over the past few decades. This will first require that our students study science instead of other subjects in our colleges in order to create the technology base and other knowledge bases that are necessary before re-industrialization can proceed. We must emulate China, India, Pakistan, or die economically. I am worried about the future of my college age children, and all of the other children in the USA.
Posted by: Gerald Spencer | March 13, 2009 8:21 PM
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Alanna
http://www.craigslistsimplified.info
Posted by: Alanna | March 14, 2009 10:58 AM
China should be worried about their dangerous over investment in US Treasury obligations. Washington ’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.
Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.
The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
Thanks,
Ron Holland
Posted by: Ron | March 14, 2009 11:24 AM
Gerald S- Nice job and thanks for taking the time to articulate your views. It is in taking nothing away from your post that I say it serves as validation for my own views and concerns on what is taking place today. I guess the term they use is "preaching to choir" but is it still does me good to know I'm not alone.
It also muffles well the shrill and out of tune voices that exist in close proximity if you catch my drift.
Peace
Out
Posted by: Rob | March 14, 2009 9:45 PM
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Posted by: Inconvenient Facts | March 13, 2009 3:12 PM
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You are absolutely clueless regarding the economy and the forces that caused the current downturn if you think that any government administration or Republicans, as a class of people or political organization, caused the current problems. The problem was caused by actions in the PRIVATE SECTOR OF THE ECONOMY and not by governmental action. We DO have a private sector. We don’t have a command economy, regardless of how much you wish we did. To be sure, the current state of the economy was NOT caused by tax cuts or the operation of any “trickle down” practices. No one with any economic smarts would make these claims like you have.
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The fact that you have resorted to emotional rhetoric (e.g. burning houses and elephant dung), rather than rational arguments tends to prove that you are doing nothing but spewing propaganda in aid of building some kind of sheep-like consensus for changing the way the economy works. In truth and in fact, changing the operation of the economy, or involving more government intervention for intervention’s sake, is like burning a barn to roast a pig.
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The only required change is to rein in the irresponsible expansion of credit. That could start by minimal government oversight of the Federal Reserve Bank and the actual enforcement of existing banking regulations. The other needed change is to spread the word that real wealth consists of what we produce from our work. It does not consist of credit, and it does not consist of government redistribution of wealth.
Posted by: John W. | March 16, 2009 9:27 AM