How much Ammo will we give the Enemie?

While searching for a topic and a little inspiration I came upon an article written by Bill Gertz of the Washington Times titled, "The Chinese see U.S. debt as a weapon". http://www.washingtontimes.com/news/2010/feb/10/chinese-see-us-debt-as-weapon/. In the article the author quotes Chinese Major General Luo stating that China could Attack the U.S. "By oblique means and stealthy feints," as well as calling for retaliation for the arms deal that the U.S. made with Taiwan. The article goes on about how China's military has made a call for a sell off of U.S. debt backed securities. It seems to me that tough economic times have lead the U.S. to the wrong side of town where we have borrowed an 800 billion dollar bank role from a shady character. In a prior blog post someone stated that with the recent arms deal between the U.S. and Taiwan we have pissed off our friend. However, a communist society with volitile military leaders and questionable human rights views could hardly be a true friend. Is it wise to borrow money from a country and then turn around and make another deal with an enemy of theirs?

As a country they have volitile leadership, are largely populated and supposedly are growing at a healthy rate. Now, with the amount of U.S. Treasury debt China holds, it feels to me we have allowed them the leverage to influence our economy as well? How many more aspects of power can we allow them to have before they realize it and begin to abuse it? I'm not a nay sayer but it seems to me that at the moment we as a country are in a bit of a hole and the first thing to do is stop digging and begin paying off our debts.


Dr. Tufte said...

-1 on Noah for spelling errors.

Check out the sidebar to make that link more user friendly too.

Viewpoints like those in this article are common, but they are nonsense. My guess is that the Chinese officers quoted are not well versed enough in macroeconomics to see their mistake.

There are two ideas going on here: 1) the Chinese owe enough of our debt to make a difference to our policies, and 2) the action of selling off that debt might accomplish that.

Let's think that through. Selling a lot of their bonds will reduce their value. The U.S. government would not be hurt by that; instead, the other owners of the bonds would be hurt. So really, what they're advocating is a scattershot attack on a bunch of small disinterested investors.

If this were a good idea, we'd see Germany doing this to Greece right now. We don't.

Having said this, governments are always taking actions that amount to "cutting off your nose to spite your face" - like trade protection. So ... this isn't out of the realm of possibility.

Whidbey said...

The Chinese own roughly $800 billion in U.S. Treasuries, which equates to roughly 5.5% of our GDP. Additionally, China had already made plans to divest themselves from U.S. Securities, but they continue to invest at a similar rate as they have over the past few years. The people cited in the article have military objectives and are trained in such, and from an economic standpoint are lacking and understanding of the impact of possibly selling U.S. Treasuries.