Posted on 01/22/2011 11:47:28 AM PST by Texas Peartree
My last article about the threat of China being overblown seems to have left out an important issue: debt. China owes about $1 trillion in US-issued debt. Scary, right? It should be scary . . . to China. Consider the following scenarios:
Scenario One: your business owes a bank a million dollars and cannot pay it. In that case, you have a big problem.
Scenario Two: your business owes a bank $100 million and cannot pay it. Now it is the bank that has the problem. Strangely, the bank may even try to partner with you to ensure that you do not default on this loan. Heck, you may even have more credit extended to you.
America has never defaulted on a debt (if you do not include the Confederate States of America) but what would happen if China tried to manipulate America through ownership of our debt? It is not like Saudi Arabia who could threaten to not sell oil on the world market. China's “output” is excess money that needs to be safely invested. China’s dumping of our debt would devalue their assets.
Frankly, America could inflate away our debt to China and the world. We could default in total, or simply default on Chinese-owned US bonds. What would be the cost (other than in reputation) of doing so? Sure, our government could no longer borrow easily on the world market, especially from China. However, this would have the salutary effect of forcing Washington to live within her means without borrowing.
Paradoxically, a strategic default of only Chinese-held debt might make other nations more likely to buy American debt as they now know that we have wiped off of our books $1 trillion of debts. That would make it easier to pay back Japan...
(Excerpt) Read more at corybirenbaum.blogspot.com ...
There is also the third scenario. We default on one trillion dollars of debt owned by the Chinese and the drop the h bomb on us.
Shhh, some people can’t handle it, if the media storyline is disputed.
I think that there is an old Chines proverb that goes “every debt is eventually paid. If not by the borrower, then by the lender.”
Here’s the paragraph you left out:
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That would make it easier to pay back Japan, for example.
I am not arguing that we should do this. What I am saying is that China does not have power over us. We are the client threatening the bank (China) with a default that would bring profound social disorder to them. After all, these excess funds were created by China via the exploitation and low wages of Chinese workers. How would the Communists face their comrades with news that America has defaulted and years of their labor were in essence transferred —along with their money— to rich Americans?
US Treasury bonds: Made in America, and in control of China.
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Now there’s no reason for anyone to click over to a blog to read the whole content.
Isn’t that great?
“There is also the third scenario. We default on one trillion dollars of debt owned by the Chinese and the drop the h bomb on us.”
China tends to act cautiously. They think that time is on their side. Military action would be very bad for business, especially when the would still need us to buy their goods. Communists only care about power, and losing power is worse for them than losing a trillion dollars.
This discussion reminds me of those who walk away from their mortgage because the owe too much.
I forget the exact numbers, but FedEx burned through a ton of cash before it became profitable. In an interview, the CEO said he discovered something: "If you owe a bank $10,000 and can't pay it, you've got a creditor. If you owe the bank $100,000,000 and can't pay it, you've got a partner."
“What will happen when instead of defaulting, the U.S. cancels the bonds in the aftermath of a Chinese attack on a U.S. ally, namely Taiwan? What would be the difference and the consequences thereof?”
I doubt that President Obama would consider Taiwan’s defense worthy of upsetting China.
And don’t think they don’t know it.
Their GDP growth, the growth of their middle class, their strain on natural resources, declining food production, enormous % of GDP to defense spending, etc.
The word “tenuous” comes to mind. Or would “precarious” be better ?
Which ever, they are riding the whirlwind.
>I find it pathetic that the United States has sunk to such depths.<
It’s not the US but a certain Kenyan Kommie Klown pResident who bows and bends over to embarrass the country.
“I find it pathetic that the United States has sunk to such depths.
This discussion reminds me of those who walk away from their mortgage because the owe too much.”
I’m not arguing that we should actually default. What I am arguing is that China does not have the power over us that many seem to think it does. We can hurt them economically and that would threaten Communist Party control.
What would President Palin do?
Would Obama pass up an opportunity to lessen U.S. red ink by $1 trillion? That could guarantee his re-election.
Thanks! :-)
Well hell, let’s barrow another couple trillion and really hurt them.
OPEC, China, Russia, and some other countries decide to move away from trading in US dollars.
That's right. As long as we can blame it's all on Obama, it not our problem.
I'm not sure we can predict that. I have no doubt that she would try to act in America's best interest, but what form that would take is unknowable at this point.
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