China publicly threatening the US, a fiscal shot across our bow. Nobody else has the cash to finance our deficits that I know of. If we can't discipline ourselves, maybe our loan officer will do it. http://www.breitbart.com/article.php?id=D96T2TT81&show_article=1 Now we are truly a banana republic. We have put our destiny at the whim of the Chinese, and they scold us in public. I guess if they stop buying treasuries in a year, we can't say they didn't warn us.
If you ask yourself what the alternatives are, you may be right, not that many safe places to park a trillion or so. OTOH, the fact that they are saying it in public is significant. Its a first, and a sign that our standing in the world is slipping. When was the last time anyone had to talk to us about devaluing our currency? Their alternatives. Gold, platinum, foreign real estate, oil companies, yen, Australian and Canadian bonds, and yes, some euro bonds. Anything is fair game, anything they think is a good investment. The arabs sovereign wealth fund dumped money into Citigroup for the first effort by Citi to raise capital (then they lost all of their money, gotta watch that speculating in the stock market, about $50 billion as I recall). If the chinese did two Citi deals, they would have placed 100 billion and be 10% of the way to placing a trillion dollars. There are alternatives.
Yeah, that's pretty arrogant. Relative to the rest of the world our stock has still fallen. When everyone's stock has fallen, I think chaos becomes a more real threat. Look at parity in college football. Michigan loses to Appalachian State, Alabama to Utah. The mid-majors are not great powers, but they are more powerful and the many of the mighty have dropped a notch.
Yeah that is what I meant by posturing, but its a hollow threat. There isn't enough gold and platinum to buy, and the rest of the world's debt is no more attractive than ours. The Chinese have tried to buy some interest in corps, but it always gets blocked. Our stock may have fallen, but the difference between us and every other super power is the whole world piggy backs off of us. Japan's economy crashed inthe 80's, but it didn't drag down the rest of the world. We are the driver, and when our stock falls everyone elses does too leaving us in relatively the same spot.
It is widely believed that China is emerging as a real power. Because we've been a great power doesn't mean that we shouldn't take China seriously, especially considering how much they back us. China, I'd guess, produces a lot more goods than we do, and while they'd take a financial hit if the US continues to stumble, to some degree they'd have more power as a result. If the value of the dollar continues to drop, that financial hit they'd take relative to a zero value of the dollar continues to shrink. Considering they produce real goods, I think they'd be able to weather it. Arguing that we've been powerful and why shouldn't we continue to be seems a lot like tunnel-vision to me. Also, because we'd been so far ahead, we're apt to drop at a faster rate than those closer to the bottom, so that the buffer between the US and lesser countries is compressed.
http://www.fxstreet.com/fundamental/analysis-reports/gold-investments-market-update/2009-02-11.html That's not a threat, thats a plan. 4,000 tonnes would cost about $250 billion, which would be a bit more than 10% of their foreign currency reserve. That's about 1 years worth of production, so it can be done.
China and the US have a symbiotic trade relationship. Neither side can hurt the other badly without hurting itself. Financial crises gives China more leverage because of the trade imbalance. Military crises gives the US an advantage because we control the sea lanes. China is a major power, a supermajor economic power, but it ain't a Superpower if it can't defend it's own trade routes. . . and it can't. It is working to change that but they are decades away.
Interestingly I heard a report that our trade deficit has shrunk somewhat, though admittedly it is because of the world recession. Apparently Americans are buying everything foreign in increasingly smaller numbers, and our exports are not shrinking as quickly. Except of course for China, who is buying even less from us. They must be saving up for all those delicious bonds Hillary is now pimping...
http://www.chinadaily.com.cn/bizchina/2009-03/30/content_7630532.htm Who needs the dollar? Last year I bought some shares in a big Australian bank that was paying 6% dividend. Between the stock market decline and the dollar rally, its down 20%, but I'm still holding. It's part of diversifying out of the dollar for the longer term. A little gold (dealers are usually out of Krugerands/American Eagle coins these days), some foreign stocks. I'll buy in real slow, given so much uncertainty these days.
