China: We hate you guys but what can we can do
Our Clintonian actress of a state secretary has been trying to shore up relations with Asian nations while also reminding China that it has already made its bed out of US debt, and now it’s time to sleep in it.
Not quite sure why she felt the need to urge China to keep buying treasury debt. I don’t see as how they’ve got much choice. My libertarian friends often go overboard with fears that China and other large holders will suddenly sell off US debt, sending us back to the financial stone age. It’s not that they couldn’t do it, but it would be economic suicide.
In effect, what China buys for their money is access to the massive American consumer market. There are some major European debt-based economies that could fill our role, but none that will do any better in a global downturn. The Chinese know it too.
The Financial Times quoted CBRC director-general Luo Ping as saying “Except for US Treasuries, what can you hold? Gold?” I suppose my liberty-loving friends are correct on that point. Compared with US debt, the security of gold’s low long term growth rate seems pretty good.
But don’t be fooled into thinking the Chinese (and Japanese for that matter) aren’t buying up all the gold they can. A few months back when Bernanke was being grilled by the House finance committee he said something to the effect of “the only time we talk about gold is when we talk about selling it” The Chinese almost choked on their sandwiches.
They know as well as we do that all this “stimulus” will depreciate the US dollar and drive up inflation. It’s a sad commentary on the state of the brave new world when policy makers must settle for bad economic choices because they’re the best option available.