We shore doo! And ain't it perty!
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 ...
Ha, ha, ha! Well done!
I’m no authority on such things, but I’ve been thinking for some time that the current situation gives us a strategic advantage over China- if the US defaults, it will crash their economy.
China and Russia can wall themselves off and survive. We can’t.
It seems you left out the scenario
where they land on our shores to take personal control, charge and possession of their property.
Methinks you or the source are lacking in sufficient depth of understanding of the Chinese psyche.
They don’t like being 2nd in any way about any thing that has any benefit or profit to it, at all.
They also like raw ruthless POWER to the max.
The British Empire became a shadow of its former self in just a few decades. Once gone, the glory did not come back. If America falls apart, then we will most likely not get a second chance. Our demographics, our education, our work ethic, our sense of morality will be gone, and we will have no foundation upon which to rebuild.
If China decides that we are not worth lending to, then we are in trouble. Sure, China would feel some pain too -- but they could "wall themselves off" and they'd be OK. We, on the other hand, would cease to be a power to be reckoned with. In just a few decades, the world would be totally dominated by China. I think they know that. I think they might even see our demise as a good thing, even of they lost all the money we owe them.
And into what?
Who knows, but it’s been discussed.
Scenario Four: Within the decade we will be incapable of confronting China on the field of battle with conventional weapons and winning a victory. We may not even be able to fight them to a stalemate. In exchange for cancelling our debts we give them Hawaii or Alaska - perhaps both - and withdraw to the Pacific coast ceeding control of the Pacific ocean to the Chinese Navy.
We shore doo! And ain't it perty!
“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 have no problem walking away from someone else’s mortgage and that trillion didn’t pay for my house. I don’t think of it as US debt but more as Liberal America’s debt. How responsible do you feel for California’s debt? Illinois’ Debt? Maybe pethetic is a bad way to put it. Pethetic would be the part where they created the debt - I say they because it wasn’t me.
All levels of government in the U.S. have foreign external debt and future unfunded liabilities of around $50 trillion. In this context, $1.0 trillion owed to each of Japan and China is manageable and the least of America's worries. Federal foreign external debt could be repaid in several years with increased Treasury bond sales to domestic lenders.
A future president should focus on the task of convincing Americans to live within their means.
Saudi Arabia is a different problem.
China has a lot of ways to cause us trouble short of open war. In fact, I would say that there will never be open war with China, because they’ll just buy our leaders (in fact, I’d say key people were safely bought decades ago).
Which is also why we won’t walk away from our debt. One way they could cause us trouble is simply by not buying more debt. The moment they refuse to buy our debt we go into a tail-spin; they don’t have to stop, they just have to buy less and we’re in big trouble.
I have no doubt they have private assurances on Taiwan already. We’ll huff and puff and move a few carriers around the Pacific, maybe make a few impassioned speeches, but that will be the end of it.
They can trade their debt for equity and wind up owning large chunks of the economy. The saudis are already doing this, the Chinese are also doing this. So far they are buying key strategic companies, like specialty minerals, or companies that have access to key military technology.
I suspect that a big part of the bail-out was driven by the Chinese. The day they woke up and realized that the valuation of their bundled mortgages were in doubt, they probably called Bush and told him, make it right. And he and congress jumped through every hoop to make a big show of making it right. I also have no doubt that the Chinese have Obama’s ears on this subject.
Here is some insight from Mark Steyn:
Decline starts with the money. It always does.
As Jonathan Swift put it:
A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
’Tis like the writing on the wall.
Today the people who have America’s bonds are not the people one would wish to have one’s soul. As Madhav Nalapat has suggested, Beijing believes a half-millennium Western interregnum is about to come to an end, and the world will return to Chinese dominance. I think they’re wrong on the latter, but right on the former. Within a decade, the United States will be spending more of the federal budget on its interest payments than on its military.
According to the CBO’s 2010 long-term budget outlook, by 2020 the U.S. government will be paying between 15 and 20 percent of its revenues in debt interest—whereas defense spending will be down to between 14 and 16 percent. America will be spending more on debt interest than China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey, and Israel spend on their militaries combined. The superpower will have advanced from a nation of aircraft carriers to a nation of debt carriers.
What does that mean? In 2009, the United States spent about $665 billion on its military, the Chinese about $99 billion. If Beijing continues to buy American debt at the rate it has in recent years, then within a half-decade or so U.S. interest payments on that debt will be covering the entire cost of the Chinese military. This year, the Pentagon issued an alarming report to Congress on Beijing’s massive military build-up, including new missiles, upgraded bombers, and an aircraft-carrier R&D program intended to challenge American dominance in the Pacific. What the report didn’t mention is who’s paying for it. Answer: Mr. and Mrs. America.
Within the next five years, the People’s Liberation Army, which is the largest employer on the planet, bigger even than the U.S. Department of Community-Organizer Grant Applications, will be entirely funded by U.S. taxpayers. When they take Taiwan, suburban families in Connecticut and small businesses in Idaho will have paid for it. The existential questions for America loom now, not decades hence. What we face is not merely the decline and fall of a powerful nation but the collapse of the highly specific cultural tradition that built the modern world. It starts with the money—it always does. But the money is only the symptom. We wouldn’t be this broke if we hadn’t squandered our inheritance in a more profound sense.
Tell that to everyone who had a bond or gold certificate before Roosevelt cancelled the promise that they would be paid in gold.
What you are talking about, is restructuring a debt. Much the same way the US government restructured GM's debt, by paying bond holder's 10 cent on the dollar.
While China owns a large chuck of the of America's $8 trillion debt, she doesn't own all of it. In fact, American's own most of it. About 3 ouf of the 8 is owned by foreiners. The other 4 or 5 trillion is owed to other government agencies, e.g., social security (sort of like robbing Peter to pay Paul). Please don't quote me on the exact numbers, but ballpark.
Anyway, a restructuring would not typically target Chinese holdings first, but all holding, including the ones held by your grand father.
And prior to restructuring, the US would try all means first before defaulting. And that would include all measure to get the economy moving again to continue to generate higher tax revenues. And one method, to create jobs, which have been unpopular, is to allow the Chinese, to use their new found wealth, to invest in US businesses, and even expand their own onto US soil. And, this idea is gaining momentum as America continues to struggle with unemployment.
In the coming decades, China will actually deepen her debt holdings in the US, but it may not be in the form of federal bonds. But instead, in the form of numerous deeds to local factories through out America ;) Mom, apple pie, and Norman Rockwell may have Chinese characters on them ;)
A quote from the following article
http://www.forbes.com/2010/03/11/treasury-securities-national-debt-china-trade-opinions-columnists-bruce-bartlett_2.html
“The Chinese dilemma reminds me of a quip once made by economist John Maynard Keynes: “Owe your banker £1,000 and you are at his mercy; owe him £1 million and the position is reversed.” (The quote can be found in his collected writings, vol. 24, p. 258.)”
Our President has never demonstrated that he has the ability to implement such knowledge. No administrative abilities, managerial skill nor economic sensibilities necessary to take the requisite actions.
We’ve got a rough ride coming up - to be sure.
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