Deficits and the Chinese Challenge

WSJ ^ | 12 Oct 2009 | ZACHARY KARABELL

[BGHater]

Debt can become a real liability for a superpower. Recall what happened to postwar Britain.

The dollar's sharp drop over the past few weeks has led to considerable anxiety about the status of the United States as the dominant force in the global economy. Closely related to this fear is constant worry about the rise of China and the evermore complicated relationship between Beijing and Washington.

Most people are now aware that China is the largest creditor to a heavily indebted U.S. government. It holds close to a trillion dollars of U.S. Treasurys and has invested hundreds of billions more in private enterprises in America. Even though these facts are plainly acknowledged, policy makers and experts continue to underestimate the full ramifications of this relationship.

Consider what happened in 1946, when a cash-strapped Great Britain turned to the U.S. for a loan. For 30 years or more, the British had been consumed by the threat of a rising Germany. Two wars had been fought, millions of lives had been lost, and the British treasury was dramatically depleted in the process. Britain survived, but the costs were substantial.

In spite of its global empire, a powerful military, and an enviable position at the center of world-wide commerce, in early 1946 the British government faced a serious risk of defaulting on its financial obligations. So it did what it had done at various points over the previous decade and turned to its closest ally for assistance. It asked the U.S. for a loan of $5 billion at zero-interest repayable over 50 years. As generous as those terms seem today, such financing had been almost routine in years prior. To the surprise and shock of the British, Washington refused.

[Diogenesis]

[runninglips]

Reinvigorating the economy is a good start, but first this nation must erase the debt. I am a financial neophyte, but what would be wrong with a two pronged assault whereby the govt has the Fed print a Trillion extra dollars up, gives them to the Chinese, then has a new currency call Federal Dollars ready to go, with the backing of gold and silver? This would of course mean that all privately held money would be worthless, but the money now held will be worthless soon anyway. As a matter of fact, isn’t there at least a trillion dollars floating around right now? We could just pay them off and cut that much from this years planned spending. A 4 month furlough for ALL NONESSENTIAL federal workers would cover the cost. Of course that would have to be followed with drastic cuts in spending, and a committment to balanced and lean budgets. The alternative is not pretty, so why wait Mr. Hope and Change? Heck, why can’t we just have the Federal Reserve print up 11 Trillion dollars, pay off all of the debt, then call it a mulligan? Screw the Fed, screw everybody.....others have done it, and we could bring the military home to defend our borders.