Tuesday, April 21, 2009

Heavy Weapons in the Economic War?

This is significant.

Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions--from Institutional Risk Analytics quoted by Ticker

Ticker thinks that's part of a longer-term plan.

In this case China had every reason to desire Citibank to grant credit in a wanton and reckless manner to Americans, as that allowed Americans to buy their imported products manufactured in China at a rate that was otherwise impossible.

Since the mathematics of such "growth rates" in spending were impossible to sustain it was therefore clear and obvious at the time they bought the bonds that such "investments" would inevitably lead to a loss at some point in the future.

And, of course, that day has arrived and PRChina has now showed a little more of their hand.


Beer, Bicycles and the VRWC said...

Pretty sure any number of people saw this coming. But they were marginalized because, gosh...who wouldn't want to buy the debt of the greatest economy on Earth?

When that debt becomes as large as the GDP, well...you get the point.

J. Strupp said...

...and then ticker goes on to tell everyone to boycott all Chinese products. Come on.

The PRC is simply playing sour grapes. The new world order of things will require them to stimulate domestic consumption in order to offset the perminent decline in American consumption rates which will approach levels not seen since the 1950's. That's gonna take a hell of a long time to achieve. On top of this, they have made concerted effors to devalue the yuan in recent history by keeping massive dollar reserves. Problem is that they can't unload their dollars without taking huge losses on their massive supply of U.S. treasuries. In so many different ways, they are screwed. At present, the only "idea" the PRC has seemed to grab a hold of to solve this problem is to wave their finger at Uncle Sam.

Ticker makes the point that PRC knew what they were doing. I tend to disagree. They got caught playing currency manipulation and now they have to figure a way out. Problem is they can't. There's no where to export.

People are overestimating the PRC at present.

Dad29 said...

First Rule of Warfare, Mr. Strupp:

NEVER underestimate the enemy.

Seems you forgot that along the line.

J. Strupp said...

Maybe. But there isn't much the Chinese can do in their current situation even if I do underestimate them. We are all in the same boat to a certain degree. "Economic warfare" is impossible. Unless economic suicide is considered a viable option.

I do not consider my enemy the Chinese. Why are we, as Americans, always quick to consider anyone who dares compete with us in the global economy as enemies? We did it with the Japanese (until they feel apart) and we did it with the Europeans upon the conversion to the Eurozone. Now we are doing it with China. This kind of logic makes no sense and breeds protectionism which is the worst thing that can be implimented, given our current situation.

Dad29 said...

Unless economic suicide is considered a viable option.That's a course that Obama is actively pursuing with his BigGreen policies...

As to the other question--perhaps you don't recall this, but PRChina is a Marxist country. Core Marxist doctrine teaches that capitalism must be eliminated, one way or the other.

That seems "inimical" to me...

J. Strupp said...

We'll see how that core Marxist doctrine holds up in the long run. The PRC has big-time problems over the horizon.