Tuesday, August 9, 2011

What a nerve!

China is telling the United States of America to get its financial house in order.  What a nerve! 

Why is China concerned about our "financial house"?  China holds 1.2 trillion dollars worth of U.S. Treasury securities.  China is behaving like a nervous amateur investor in its constant concern about the value of this holding.  If the U.S. dollar goes down, the value of China's holding of U.S. Treasury securities goes down.

There is a saying "Be careful what you wish for.  You may get your wish but there could also be an undesired result".

China wishes that America would "get its financial house in order" so that the U.S. dollar retains its value.  But the best and in fact the only way for America to get its financial house in order, and strengthen the U.S. dollar, is to greatly reduce the importation of foreign-made products!  

In this wonderful and hoped-for scenario, we would instead do the manufacturing here in good old USA!

In Fall 2008, after that stock market crash (August seems to be the month for stock market crashes!), purchases of Chinese-made goods by western countries dropped off.  Immediately, laid-off Chinese workers began rioting. 

In the wonderful and hoped-for scenario referred to above, the same thing would happen but on a larger scale.  The Government of China would not be happy with this outcome!

This is what I am referring to above: "You may get your wish but there could also be an undesired result." 

China can't have it both ways.  China can't be assured that the U.S. dollar will hold its value, while China sells us four times more than it buys. 

The scolding that the U.S. should "get its financial house in order" is contained in a diatribe issued by China on August 6, 2011.  Some other gems in this diatribe are reviewed below. 

The U.S. should "tighten its belt" (probably the belt was made in China!) and confront its "addiction to debts....the good old days when (America) could just borrow its way out of messes of its own making are finally gone".

There is one kernel of truth here.  We are in a mess of our own making but it did not come about through borrowing.

It came about through sending millions of our manufacturing jobs to China and other low-wage countries.

The statement from China goes on to stay that "global turbulence" will result "if the U.S. fails to live within its means".

What a nerve that China lectures us.  China is on a binge of unwise borrowing.  Borrowed money has been used to build millions of apartments and even new cities.  The only problem is that these apartments and new cities are empty.  China does not allow the trillions pouring in from western countries to trickle down to the ordinary Chinese citizen.  Therefore there is no one ready to take up the new apartments and new cities.

What happens when difficulty arises in carrying the borrowed money, without income from the new facilities?  Possibly or probably a crash similar to the crashes we have in the western countries!

Now we come to the bottom line:

"China has every right to demand the U.S. to address its structural debt problems and ensure the safety of China's dollar assets."

This statement is childish.  Every investor would like to have assurance of absolute safety.  But this little feature is not generally available!  If China is worried about the safety of its investment, it should sell.  Otherwise, keep quiet!

China made the investments in U.S. securities for very good reasons to benefit itself.  No one held a gun to China's head, forcing China to buy U.S. securities.

But there is another factor.  China is trapped "in a mess of its own making"!  If China sells any of its U.S. Treasury holding, that action alone will force the U.S. dollar down, the very result that China fears.

Speaking of holding a gun to a head, a "top Chinese general" last month questioned America's military budget and suggested that "paring back defence spending" would be in the interest of U.S. taxpayers.

There is of course a huge kernel of truth here.  But again, China is demonstrating hypocrisy and a lot of nerve.  China is using the trillions we give them to greatly increase their already large armed forces, at a time when there is absolutely no enemy in sight. 

China has announced a policy of achieving complete self-sufficiency in all manufactured goods by 2050.  They know very well that the best way to have a viable and prosperous economy is to be self-sufficient in manufactured goods.

But again the hypocrisy and nerve.  They don't want us to be self-sufficient in manufactured goods!  They want to keep us in a situation of slavery to imported goods. 

We have to get out of slavery.   Otherwise, our unemployment and debt problems will continue indefinitely.

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