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  • China, Debt, and Influence

    Chinese Premier Wen Jiabao

    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.

    Posted in International [slideshow_deploy]

    16 Responses to China, Debt, and Influence

    1. rudy. claremore o.k says:

      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.

    2. Barb -mn says:

      That's okay guys. If he's talking about every single person that brought this country where it is and continues to go, where any handout or position in government, (except the minority few) is a cheat, he is right.

      Maybe deadbeats to them means: 1. Most generous and commendable. 2. all knowledgeable (as soon as the public school systems close down) 3. Strong in principles values and CIVIL LAW (the only law known to mankind that is equal to mankind. Let's not be democrat and take that out of context "equal" as far as CIVIL: rules, laws and expectations. Ask what every American can do for this country? is TO DO FOR YOURSELVES. TAKE ON AMERICAN PRINCIPLES AND VALUES. TAKE ON YOUR INDEPENDENCE. IT HAS ALWAYS BEEN EXPECTED OF ALL CITIZENS/AMERICANS. WE BELIEVE WE ARE CREATED EQUAL. NO EXCEPTIONS TO ANY ABLE BODIED HUMAN LIFE. THE GOVERNMENT SEEMS TO THINK LESS OF YOU. CONDUCTING, PROMOTING AND PROVOKING MUCH RACISM,DISCRIMINATION, BIAS.

      DEMOCRATS leaders: anyone can take any words of anyone they want, anyway they want to understand it. Lie through their teeth to justify their cause. indoctrinating into others, hmmm sounds like a certain religion. Did he have a scouring look? or was it warm and gentle?

    3. Barb -mn says:

      Sorry, wrong page.

    4. Carlos, Bay Area says:

      There is one more thing the Chinese can do with their surplus. That is, to be a BUYER of goods and services in the world market.

      They would do good to themselves and to the world to do what is right in this regard. They are, as of now, only thinking of themselves; using mercantilism to gain power. What they should be doing is to promote prosperity for all.

      Unfortunately, as they prosper through mercantilist policy (by not purchasing and artificially maintaining home wages low, aka "virtual slavery",)they prevent prosperity for other nations, including poorer countries. Countries which the Chinise, as good communists, should be helping.

      With their brand of mercantilism, they run the risk of hurting themselves economically and they cannot afford it. They need to keep their growing population properous enough to tolerate the lack of freedom. Nations will many times choose Security (including economic security) over Liberty.

    5. Ron in NC says:

      China should be worried about their dangerous over investment in US Treasury obligations. Washington’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

      Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

      The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
      Thanks, Ron Holland

    6. Ron in NC says:

      China should be worried about their dangerous over investment in US Treasury obligations. Washington ’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

      Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

      The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498

      Thanks,

      Ron Holland

    7. Franklin's Lock says:

      That is exactly the problem. Today’s debt is not the major concern, but more unrestricted spending, borrowing, and more debt. Obama and the Democratic Congress have not demonstrated that they are going to limit spending. With programs they have planned along with the predicted implosion of Medicare, Medicaid, and Social Security, it appears that all they are going to do is tax, spend and borrow. So, the concern about the influence of China is quite relevant with the end of the spending spree no where in sight. We should restrict the spending and borrowing now for the future issue that are going to arise, not have them happen to us and then react with more borrowing. We should be saving and paying off debt now, not spending more.

      http://franklinslocke.blogspot.com/

    8. Barb -mn says:

      Dear Mr. Wen Jiabao,

      Please know, true American people do not spend more then we make. Do not bribe for self gain. Do not cheat to get ahead. Do not think, work or expect inefficiency or for inefficiency to be productive. Do not borrow what we can not pay back.

      I could go on and on Mr. Jiabao, but with all due respect, I'd just like you to know, he doesn't represent us.

    9. Ben,USA. says:

      I am a very proud American! I did not vote for mister Obama, but I will give the man a chance. If he comes through with even a small portion of his promises to us I will be happy. Now, if he has given,(the buck stops at his desk!), the chinese emminent domain over ANY American soil, then he should be tried for treason. Also, if it's true, I wonder what his intentions were in becoming our president in the first place? Prosperity or destruction?

    10. mike baker Dallas Ce says:

      The free world's markets are China's 401k. It's ironic that they couldn't predict what too much meddling in the free market by government would do to the value of their investments.

    11. Ross, Bradenton Fla says:

      God help us when the hyper-inflation kicks in, the late '70's will look normal with its history of double digit inflation(thanks to Jimmy Carter and the Democrat control congress). Only massive tax cuts can slow it down enough to make our economy manageable. But only God can help us to get out of the tallons of these socialist Democrats 'hell-bent' on suffocating our liberties and pursuit or happiness.

    12. Lynn B. DeSpain says:

      This Republic consist of Fifty Independent Nations united under a Common Charter (The Constitution).

      No President, no Representative, nor Senator, can knowingly or unknowingly give away the rights of any of the Fifty Nations. If they try, they can be held accountable for Treason.

      If any foriegn Nation representative were to come onto my property and tell me that his Nation now owned my land and home, I would personally blow his belt buckle out his backbone. But, then again that's me, but I'm sure that I am not the only American who feels this way.

      Hozro

    13. Marshall Hill MI. says:

      WAke up America!

    14. Pingback: New Years Resolution « Understanding China, One Blog at a Time

    15. Brandon Hinesville G says:

      cool but more

    16. Brandon Hinesville G says:

      BRANDON LOVES THIS WEBSITE

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