July 28, 2009

Do the Chinese Buy the Spin?

Justin Katz

The administration likely offered something more concrete to the Chinese, during its groveling session, than we ordinary citizens apparently deserve:

Among the officials meeting with Chinese representatives Monday, the first day of two-day talks, were Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, National Economic Council Director Lawrence Summers and Peter Orszag, Obama's budget director.

U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. Officials said Bernanke discussed the Fed's exit strategy from the current period of extraordinary monetary easing.

If U.S. officials offered only the vague scams that have constituted their public statements, then we can expect the Chinese to accelerate their exit strategy from American investments. Although, it's hard not to wonder whether it mightn't be to the nation's long-term good were the Chinese to turn off the spigot by which our government has tapped future generations.

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Its good that you have finally noticed. I mean, hasn't this been going on for over a decade? What we as citizens have to decide is whether this is our new reality based on circumstance or on our leader's choice. Bush tax cuts that bought islands in Dubai's playground for the select few or the new world order that the elder Bush was not quite straight about. I wonder which one you are suggesting.

Posted by: David at July 28, 2009 10:49 PM

'Exit from American investments' is poorly phrased Justin. When the Chinese will not buy American at this fall's debt auction (approximately 2 trillion dollars worth will be auctioned off) they will be swapping the $1.5 trillion US dollars they now hold for other assets before the value of the dollar falls like a rock. They will buy copper, gold, steel etc.

When China exits the Treasury auctions the Fed will step in and 'monetize' the debt by printing dollars to buy debt inflation will accelerate certainly beyond anything seen in US history because countries and companies/banks will rush to spend all the dollars they have been sitting on since 'the big print' started last fall (the Fed has printed and loaned some $14 trillion since then). Inflation has not appeared since the money has not been 'spent' (see PPI) in the traditional sense) yet.

When you reach into your wallet to pay for a small pizza in the near future pulling out a $100 bill and the driver looks perturbed because you haven't tipped him remember this post.

Posted by: doughboys at July 29, 2009 8:18 PM
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