Friday, March 20, 2009

When China Talks, They Listen

I held off commenting on this story because I was sure there would be some sort of follow-up. But the response from the Obama administration was a wall of silence – which is a sure sign that somebody cut a bit too close to the quick. In this case, it was the premier of China, who, last week, “warned” the U.S. against devaluing the dollar through "reckless spending". Why do they care? Aren't we their old Cold War enemy? Wouldn't they love to see us grubbing for roots and eating our shoes, the way they were doing just a few years back? Yes... but, on the other hand, they also hold $1 Trillion-with-a-T of U.S. government debt; in fact they are our biggest foreign creditor. (How things came to this pretty pass is another question, which I won't belabor at this time.) The quote from the premier was: “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.” It's sort of like finding out that your drunken brother-in-law borrowed your car, and calling him on his cell phone to beg him to please take it easy and go slow, while trying not to upset him too much.

Now, the irony of this event is almost beyond description. Return with me now to yesteryear, to the heyday of the reign of Chairman Mao, and his Cultural Revolution, and witness once again an event unprecedented in history, namely the nearly total social, economic, cultural, and physical self-destruction that the Chinese inflicted on themselves during that period. Mao called it "continuous revolution", but it was more like auto-genocide. Their GNP was, for all intents and purposes, zero. Crops rotted in the fields while people built absurd and non-functional backyard iron furnaces. China had a huge military that was supported by millions of starving peasants. Famine and revolutionary violence ran rampant. And Mao and his shrewish wife ruled with absolute and unquestioned authority from their redoubt in the Forbidden City. And not only that, but they received no foreign aid from the United States! If there was ever a country doomed to wither and die, and disappear without a trace, it was the China of that era.

And disappear it has, to be replaced by an economically exploding, communist-only-in-name (with Mao's puffy face still plastered to every public building in the land) society where capitalism (the real thing this time) has somehow, against all probability, taken the upper hand and skyscrapers are going up at the rate of one every five minutes. The country is so wealthy now that it looks all around the globe for places to invest its money... and sure enough, it latched onto U.S. government debt (AKA “the national debt” -- that's money taxpayers owe to someone else, even though they had nothing to do with making the loan) as a safe haven for about half their total cash, i.e. foreign currency reserves. But somewhere along the line they “misunderestimated” the ability of the U.S. government to support, and maintain, a sound economy and a sound dollar. And considering that they are forever pledged to Marxism (at least in theory), it's no surprise that they have a na├»ve faith in government – and not just their own.

So – oops! -- somewhere along the line the American juggernaut developed four flat tires all at once and skidded into a ditch, and now the Chinese are concerned – to put it mildly – that they may have made a horrible mistake. Well, let's see – they invested in an economy loaded with more time bombs than an anarchist cell, and run by a cabal of rogues and fools primarily to serve the interests of so-called “capitalists” who are little more than highwaymen. And they should have known all this, because a lot of people here certainly did – at least those of the paleoconservative and libertarian persuasions. But again, they have a hard-wired faith in government, so they loaned us $1 trillion and are now suffering from night terrors as a result. But not to be deterred, our secretary of state has gone over there, hat in hand, wearing a feces-consuming grin from ear to ear, to beg them to loan us even more money! This is truly a pleasure to watch... especially since promoting Chinese interests was more or less Job One during the administration of the Two Clintons. And I suppose that a lot of their investing in our economy took place at that time as well... so it's extra delicious seeing her go over there for another fix, this time on behalf of a different administration.

Now, if I were trying to convince a foreign government to buy $1 trillion in U.S. bonds, I guess I would want to try and convince them that the dollar wasn't about to turn into funny money. And yet, aside from the borrowing that selling bonds represents, the only other way all of the Obama programs are going to be paid for is through the magic of inflation. In other words, we have a choice – we can either sell bonds on the premise that the value of the dollar will be maintained, or we can turn ourselves into an economic pariah by inflating our currency to the point where all those foreign creditors will be left with is a bunch of fancy packing material. We can't have it both ways -- and, aside from plain laws of economics, the world won't permit it. The hyperinflation option would at least solve our balance of trade problems, because no one would be willing to sell us anything! And it would make our foreign aid efforts just a bit on the absurd side – how would you like to get a weekly check from Zimbabwe for a trillion Zimbabwe bucks? It might pay for a can of soda... maybe. So that would certainly be good for a few laughs, and it would force all those foreign aid junkies whose habit we have been supporting since World War II to go cold turkey (or "dead meat" in the case of Israel). And it could very well happen... but what is more likely, at least in the short run, is massive borrowing, which means from China, since no one else has any ready cash (except maybe the Arab states, and how badly do you think they want to support – if only indirectly – our foreign policy in the Near East?). So – again, ironically in the extreme – it may be China, rather than any consideration for the welfare of our own citizens, that causes the Obama administration to cool it a bit with the over-the-top spending. The American people can live in packing crates and starve, as far as these people are concerned – but we don't want to offend China, oh no! And hey – if China turns out to be the best, or only, friend the American middle class has, so be it. I'll take help where I can find it, 'cause it certainly isn't going to come from the government.

And by the way, don't expect to hear a peep from the Obama administration about Tibet for the foreseeable future. And frankly, if I lived in Taiwan I'd be boning up on the Chinese national anthem about now...

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