AlterNet: How China Holds the American Economy by the Balls

[marmar]

AlterNet / By Scott Thill

How China Holds the American Economy by the Balls
America stays afloat selling billions of American dollars and Treasuries to our Chinese sugar daddy to keep our faltering consumer economy alive.

May 3, 2010 |


On May 1, China popped the cork on Expo 2010 in Shanghai, a months-long international celebration signifying the ascension of the city, and thereby its parent nation, as a global economic and cultural powerhouse. Meanwhile, in the United States, China's economic and cultural power has come under mounting fire.

Short-happy hedge funder Jim Chanos, who prophesied the fall of Enron, argued in April that the country's heated property market was on a "treadmill to hell." Foreign Policy followed suit by more or less blaming China's alleged currency manipulation, rather than America's own corporate and economic malfeasance, for exporting unemployment to the United States. Even our President Barack Obama jumped on the dogpile, expressing concern that China has not moved its currency to a "more market-oriented exchange rate," during an April meeting with Chinese President Hu Jintao in Washington. His administration stopped short, however, of releasing an April 15 report to Congress expressing this disapproval in concrete terms, choosing instead to trot out the disgraced deregulationist Larry Summers to soothe the Chinese that such matters will be taken up at future gatherings.

For its part, China has responded to the finger-pointing by the United States with its own middle digit.

"We oppose the practice of finger-pointing among countries or strong-arm measures to force other countries to appreciate currencies," Chinese Premier Wen Jiabao said in March, before restating his well-publicized 2009 worries that U.S. Treasuries are in trouble. "In the press conference last year, I said I was a bit concerned about it. This year, I make the same remark. I am still concerned. I hope the U.S. will take concrete measures to assure its investors." .........(more)

The complete piece is at: http://www.alternet.org/economy/146702/how_china_holds_the_american_economy_by_the_balls

[xchrom]

1. Recommend

[dmallind]

2. Reminder - China owns under 7% of US debt. Hyperbole notwithstanding. NT

[loudsue]

3. Is that really true??

Do you have a reference for that? To hear the panic chorus, you'd think they own 90% or more. If they only own 7% of our debt, that's about the same percentage of the GDP that Walmart is responsible for. Surely there is a correlation there, somewhere.

[dmallind]

4. Yes it is - see link

Current debt is about $12.8T China owns about 870B. You could add a percent or two if you count HK et al, but really by far the biggest holder of US debt is the US government (like every other investor seeking security, the SS administrators buy a lot of US bonds.

http://www.treas.gov/tic/mfh.txt

[renko]

5. Wikipedia US debt

The US holds 1/2 it's own debt in Treasuries for SSecurity.

[dawg]

6. replace the word "China" with "America", and ...

replace the word American with Chinese, and then you might have a proper headline.

Remember those "worthless IOU's" that we were told was all the Social Security trust fund owned? Well, that's all the Chinese own as well. Meanwhile, their factories are running at full capacity manufacturing various items to send to America. We get the stuff, they get the paper (and busy workers, which is what it is all about for them).

What happens if they stop accepting our paper? Well, we would no longer be able to buy all their cheap products. After a difficult adjustment period, factories would open in the U.S. and close in China. We would pay a lot more for certain items, but we would have more manufacturing jobs.

What if they tried to crash our economy by selling all our debt at once? Well, the dollar would crash in value, which would collapse the value of the very bonds they were trying to sell. Like Bernie Madoff's clients, they would get pennies on the dollar. And the end result of the lower dollar would be that we would be able to afford less from abroad, and we would be forced to manufacture more here. Entire cities of factories in China would be shuttered. The social and economic upheaval they would experience is unthinkable. For us, it would be a difficult adjustment. We would need to get by with a more European standard of living, at least with regard to material things. But the result for the Chinese society as a whole would be devastating.