China’s Concern IS a Big Deal!

Today, the Chinese Prime Minister expressed concern over the value of the treasury bills and US dollar reserves they are holding:

“We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” In rare comments on another country’s financial health, he added: “I’d like to take this opportunity here to implore the United States … to honour its words, stay a credible nation and ensure the safety of Chinese assets.”

This makes a lot of sense and should be a real concern of the United States.  This is potentially a HUGE HUGE issue.  We cannot downplay this!

China buys Treasury bills, and those funds are then used to fund our government spending and the stimulus packages.  If China stops buying them, we will have to either find a new lender, start printing more money, or stop spending.

We have printed over $2 trillion over the last 6 months.  Since the Federal Reserve does not report the total money supply, we do not know what effect that has had on the amount of dollars in circulation, but common sense would tell you that we have increased it by 5-10% at least.

The US dollar is strong right now because everyone is selling their assets that are paid for in US dollars.  Oil, stocks, bonds, and many other commodities are traded in US dollars.  So when people sell those, they need dollars in return.  Once they either spend, save, or reinvest that money, the demand and value of the US dollar will deteriorate.

China’s concern about their massive reserve holdings is very legitimate.   If we keep printing money, and the amount of dollars increases, their holdings automatically lose value.

China has already funded their first $600 billion stimulus package with their savings, which means they used part of their dollar reserves.  If they decide that US investments are no longer worth it, then they will start to sell their holdings and stop buying them from the US.

Once China stops borrowing from us and stops exporting all their goods and start keeping them at home, their economy will decouple from ours.  That would be great for them, and horrible for us.  A lot of people say that our economies are too linked together for this to happen.  I would argue that once the Chinese start buying the products they make, they will stop shipping them to us.  Peter Schiff has been talking about this for the last few years.  His prediction looks like it is going to come true.

If there is one national security issue that needs to be addressed, this is it.  Our government should not be reliant on another country’s government to fund it’s operations.  They could use their holdings as leverage, telling us that if we don’t do one thing or another, they will dump all of their holdings.  We need to live within our means and not spend more than we make.  It is not just an economic issue, but one that is important in us being the leader in the world.

Of course, Obama’s henchman have “assured” the Chinese that their investments are safe with more lip-service.  Here’s what Robert Gibbs said:  “There’s no safe investment in the world than the United States.”

Whew!  I mean, if that doesn’t assure the Chinese, I don’t know what will!  I mean, who cares if we are printing trillions of dollars and running a $1.3 trillion yearly deficit?  Who do you think is funding that deficit Mr. Gibbs?  If you are going to say something like that, you better back it up with actions.  Talk is cheap, especially when what you’re saying has no basis in reality.

Instead of going on about Madoff, Jon Stewart, or some other news item, this needs to be on the front page of every newspaper.  Our largest creditor is basically giving us a “past due” notice and is telling us to get our act together.  We need to stop using our credit card!  Instead, the White House is just blowing them off, which could lead to our creditor cutting us off.  If the Chinese lose faith in the US dollar, it will lose all of it’s value and become worthless.

We have been warned.  Now we have to act.


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2 Responses to “China’s Concern IS a Big Deal!”

  1. coopgeek Says:

    The collapse of the capitalist banking system in this country has only revealed what was already the problem: our economy is based on speculation and marketing games, and not actual production. We need to seriously get to work on building sustainable local economies. (and I don’t just mean recycling and solar)

  2. utah1234 Says:

    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:
    Thanks, Ron

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