Arms Deal

After listening to the U.S. ambassador to Beijing speak about the arms deal between the U.S. and Taiwan on world news, I felt kind of disspointed in the U.S. for commetting such an action. Are we that desperate for money that we have to go piss off our friends? In my eyes, it would be like China selling arms to Mexico. Wouldn't it piss off the NSA and other government agencys if a low level country like mexico received new weapons and advanced technology? Shouldn't we have let China determine if Taiwan was going to get new defense weapons and what kind? Why would we want to upset China? And, what are the repercussions we are going to face in the future if any?

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Obama eyes spending freeze to tackle deficits

I just read an article on msn.com. I feel this is going to be a heated subject in the White House for months to come. I'm going to have to agree with President Obama on this one. We need to cut reckless governmet spending to reduce the national debt. I know it's only going to be a 5 percent freeze but in times like these every penny counts. We also don't want to scare China off because they are the only ones really investing in our country and if we lose them we are screwed. I also like how Obama does not care about how his decisions are going to effect his chance at re-election. His decisions are based on how they benefit the whole country not just for his political gain.



United States Creditors

Reading the article titled Debt Burden Now Rests More on U.S. Shoulders in the Jan. 22 edition of the New York Times, it states that China, while still the States' largest creditor, significantly decreased its investment in the U.S. China held $728 billion of Treasury securities at the end of 2008, and invested $62 billion through Nov. 2009, which accounts for less than five percent of the money borrowed this past year by the U.S. treasury. What is interesting is that in 2008, China bought 20.2 percent of the U.S. debt. However, in 2009, they were projected to invest only 4.6 percent in U.S. treasuries. Why is there such a large change in spending? Has China found an alternative investment option, or are they worried about the massive U.S. spending increases? ITG chief economist Robert Barbera says that China is focused on keeping their currency value low compared to the U.S. dollar, and they needed to buy fewer treasuries to do so. It is possible that is the case, but there could be more appealing options for the Chinese.


China's GDP

A New York Times article offered some bold claims regarding Chinese economic growth. It was entitled China on Path to Become Second-Largest Economy. The main evidence offered was that China reported an increase of 10.7% for its Gross National Product during the 4th quarter of 2009. This figure seems suspicious. In a increasingly interdependent and global economy that level of growth seems unlikely amid worldwide economic downturn. Economic growth and increased GDP are of course possible and China's high level of exports would likely contribute to some level of increase.
However, some things about China and it's government should be kept in mind when dealing with these types of reports. The most important being that China is a totalitarian state. In China the government has complete control over and effectively exclusive access to most of the raw data used to formulate economic benchmarks. The Chinese government is notorious for reporting only good news and wanting to show a strong front to the "enemy" west. Additionally the method used by the Chinese government, purchasing power parity, is regarded sceptically by even kind critics. That method tries to take into account lower cost of living but in doing so departs significantly from nominal exchange rates and relative strength of different currencies. In 2003 the World Bank's purchasing power parity calculations put the parity rate at 1.8 Chinese yuan to 1 US dollar. At the time the nominal exchange rate was 7.6 yuan = 1 dollar.
With the assumption that these GDP figures are inaccurate comes the obvious foll0w up question. What is the actual economic growth of China? This also raises a point about the validity of indicators like GDP in general. How much faith should we place in these numbers? GDP does seem to be the most effective and broadest way to generally measure economic growth and activity but since most of the educated world is at least in part influenced in financial decisions by changes in GDP, i.e. an announcement of recession, then shouldn't more focus be placed on evaluating this number and analyzing the underlying data?