China, Debt, and Influence
Posted March 13th, 2009 at 3.13pm in American Leadership.
Speaking at his annual press conference, Chinese Premier Wen Jiabao expressed concern about the outlook for U.S. government debt: “We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried. I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.”
China does hold $1.946 trillion in foreign-exchange reserves, two-thirds of which is believed to be held in Treasury bonds and other agency debt (think Fannie Mae securities). But as the Wall Street Journal’s Andrew Peaple explains, China’s status as the largest buyer and holder of our debt does not really empower them much:
Rhetoric aside, it bears repeating that China will find it hard to make a meaningful shift out of Treasurys, the prime current channel for investment of its $1.95 trillion foreign exchange reserves. Some say China could switch holdings into gold — but that market’s highly volatile, and not large enough to absorb more than a small proportion of China’s reserves. It’s not clear, meanwhile, that euro, or yen-denominated debt is any safer, more liquid, or profitable than U.S. debt — key criteria for China’s leadership.
Most pertinent of all, even if China decided to sell off some of its U.S. Treasury holdings, it would scarcely be able to dump that in large blocks. And a partial selloff would surely lead to a slump in the Treasury market, eroding the remaining value of China’s portfolio. … But whatever the rhetoric, Wen and his Chinese leadership colleagues, like the rest of us, can do little but watch, wait and worry about the state of the U.S. economy.
Heritage fellow Derek Scissors made a similar point in testimony earlier this year:
One area of concern in the U.S. is Chinese financial influence. As noted, Chinese investment is largely involuntary, a function of having a great deal of money and no place else to put it. This refines the usual analogy of banker and customer to one where the banker has a choice of “lending” to one particular customer for the better part of her business, or crafting an exceptionally large mattress. The influence is mutual.
Who needs the other more varies with American and international financial conditions. The more money the U.S. borrows, the more the American economy needs the PRC. The more desirable Treasury bonds are, the more China needs us. The U.S. is planning to run a federal deficit of over $1 trillion but there has been a flight to quality and American Treasury bonds are highly desired. There is balance on this score. The PRC can exercise little or no leverage over American policy by virtue of its purchase of our bonds.
There is future danger in the possibility that we will run sustained, gigantic deficits. The longer these last, the more likely it is that U.S. treasuries will become relatively less attractive, thereby tipping the balance of influence toward China. The U.S. could come to need Chinese purchases more than the PRC needs American bonds, yet another argument to control the federal budget.
The problem is not our current level of debt. China can and will consume that level for now. What will hurt us is sustained exploding deficits. Right now, everyone wants treasuries. But China’s trade surplus with us is not going to grow as fast as the Obama Administration’s budget is predicted to. If we still are selling in large quantities to China five years from now and others don’t want our treasuries, then we’re going to have to compensate them with a higher yield … if they’ll take them at all.
- Author: Conn Carroll
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March 13, 2009 rudy. claremore o.k writes:
I have recieved an e-mail concerning china buying our debt in trade for u.s. property. I have attached the following e-mail . Could you let me know if indeed this is true or not. Thanks Rudy
FEDS GRANT EMINENT DOMAIN AS COLLATERAL TO CHINA FOR U.S. DEBTS
February 26, 2009
Beijing, China — Sources at the United States Embassy in Beijing China
have just CONFIRMED to me that the United States of America has tendered
to
China a written agreement which grants to the People’s Republic of China ,
an
option to exercise Eminent Domain within the USA , as collateral for
China’s
continued purchase of US Treasury Notes and existing US Currency
reserves!
The written agreement was brought to Beijing by Secretary of State
Hillary
Clinton and was formalized and agreed-to during her recent trip to China .
This means that in the event the US Government defaults on its financial
obligations to China , the Communist Government of China would be
permitted
to physically take — inside the USA — land, buildings, factories,
perhaps
even entire cities - to satisfy the financial obligations of the US
government.
Put simply, the feds have now actually mortgaged the physical land and
property of all citizens and businesses in the United States . They have
given to a foreign power, their Constitutional power to “take” all of our
property, as actual collateral for continued Chinese funding of US
deficit
spending and the continued carrying of US national debt.
This is an unimaginable betrayal of every man, woman and child in the
USA.
An outrage worthy of violent overthrow.
I am endeavoring to obtain images or copies of the actual document but in
the interim, several different sources both in the US and in China have
CONFIRMED this to me.
More details as they become available. . . . . spread the word ASAP.
————– UPDATE 1:40 pm EST
Eminent Domain is the power of government to TAKE private property for
public use without the consent of the property owner. Under our
Constitution, the government can only “take” when providing “just
compensation” for what they’ve taken.
Who decides what constitutes “just compensation?” The government!
Homeowners who felt the government was not paying them enough for
property
in past “takings” have filed lawsuits. In absolutely every such case, the
value placed upon the property by the government was upheld by the
courts.
Our federal government has now granted to China , this power to “take”our
homes and businesses in the event the US Gov’t defaults on its debts.
Let’s
play this out as a worst case scenario. . . . . .
The US Gov’t goes belly-up and China comes in and says, “they owed us $2
Trillion in Treasury Notes and another $2 Trillion in actual cash money
which is now worthless. We are taking the entire state of Hawaii and the
entire state of California in lieu of this bad debt. ”
With the stroke of a Chinese chop stick, Hawaii and California — all the
land and buildings in those states — are now owned by China .
The “taking” would be a “valid public use” because it was “taken” in
payment
of the public debt!!!!
China could then turn around and declare the value of all that land to be
worth. . . . . I dunno, ten cents on a dollar?
For your $200,000 house, you get a Chinese check for $20,000.
Needless to say, the property owners would go ballistic and demand “just compensation” for what was taken. Who gets to decide what is “just?”
China!
Don’t think you got a fair price for what they took? No problem, sue
China.
You’ll lose.
People who live in those states and own their land outright, might be
able
to negotiate with China to “rent” back their own property, as long as the
property owner continued to pay all his taxes; but the land and buildings
would belong to China !
This is what our own Government has just done to us and it is the single
most vile act of betrayal in the history of human existence.
>————-> SECOND UPDATE 3:48 PM
In early February nine U.S. States began the process of re-asserting
their
Sovereignty pursuant to the Ninth and Tenth Amendments to the US
Constitution; declaring null and void any actions by Congress that
violated
the Constitution.
At the time, I wrote about those state efforts here and wondered why so
many
states were taking-up such an arcane issue in such a seemingly urgent
fashion. I guess now, we know why.
The states were obviously privy to what the feds were planning to do with
granting Eminent Domain to China . The states took action to make certain
the
feds couldn’t give away cities or the states themselves!
This situation is going to get VERY ugly, VERY fast as one sovereign
power
(the feds) try to literally give away the land of other sovereign powers,
(the states). This is the type of thing that starts Civil War.
Our present federal government makes the treachery and betrayal of
Benedict
Arnold look like child’s play.