I was surprised that none of the financial blogs I read daily had a comment on this story I found on Bloomberg.com tonight: "China Needs U.S. Guarantees for Treasury Bond Holdings."
See, for the unaware, China owns a metric assload of U.S. Treasury bonds - $682 billion according to the article. Basically, China has lent us money to fuel our consumption binge. In exchange, we buy their LCD TV's and everything else they manufacture.
Strangely, shortly after taking control as the secretary of the Treasury, Tim Geithner decided to lob a financial cold war scud missile right at China, when he accused them of manipulating their currency - keeping it artificially weak to give China an advantage in global trade.
The thing with China is this: they own a ton of our debt - this puts both countries in a bind. We need China to continue to fund our debt and consumption based economy. China probably wants to scale back its purchases of U.S. debt, but they have a tough time doing so, because they're already in up to their eyeballs: they can't just walk away now, or they'll screw us AND themselves. Talk about a game of chicken.
This Bloomberg story though, again, reeks of The Onion. After all - our debt is already guaranteed by the U.S. Treasury. Now they want us to REALLY guarantee it? They want HILLARY to guarantee it?
See, for the unaware, China owns a metric assload of U.S. Treasury bonds - $682 billion according to the article. Basically, China has lent us money to fuel our consumption binge. In exchange, we buy their LCD TV's and everything else they manufacture.
Strangely, shortly after taking control as the secretary of the Treasury, Tim Geithner decided to lob a financial cold war scud missile right at China, when he accused them of manipulating their currency - keeping it artificially weak to give China an advantage in global trade.
The thing with China is this: they own a ton of our debt - this puts both countries in a bind. We need China to continue to fund our debt and consumption based economy. China probably wants to scale back its purchases of U.S. debt, but they have a tough time doing so, because they're already in up to their eyeballs: they can't just walk away now, or they'll screw us AND themselves. Talk about a game of chicken.
This Bloomberg story though, again, reeks of The Onion. After all - our debt is already guaranteed by the U.S. Treasury. Now they want us to REALLY guarantee it? They want HILLARY to guarantee it?
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
All I can think of is the quote from Tommy Boy: "Hey, if you want me to take a shit in a box and mark it guaranteed, I will - I've got the time."
The parallels between what we in the U.S. are going through with our "too big to fail " institutions, and the dilemma China has with it's U.S. debt are startling. China can't just walk away, just like we can't just let Citi and BofA blow up. Still, at some point, they may find that they'll have to reach some sort of compromise and cut their exposure to the U.S.
I'm not a poli-sci expert, and I'm not a global trade expert - but this will be a key talking point for the next several years.
Of course, this post wouldn't be complete without a viewing of another classic Chinese-USA conflict - Costello's microprocessors deal with the Chinese from the Departed. Skip ahead to 3:10 in the video.
"I'm concerned about a Chinaman who thinks it's wise to come to a business transaction with automatic weapons. For his own good tell Bruce Lee and the Karate Kids none of us are carrying automatic weapons, because HERE, in THIS COUNTRY, it don't add inches to your dick."
and then, of course, the capper:
"What we generally do, IN THIS COUNTRY, is: one guy brings the items, and the other guy PAYS him. No ticky - no laundry."
Hey - if all it takes to make China happy is to have Hillary take a shit in a box and put a guarantee on it - so be it. Ship it!
-KD
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