Thursday, May 07, 2009

China cuts off the tab

The past six months or so, the federal government of the United States, under two different Presidents, has spent money like a drunken sailor. The United States has been able to do so, in part, because China has floated the United States money for the tab. China has been doing so for over the past several years. However, apparently, the Chinese are now worried about whether or not investing in US bonds is a safe investment.

Though the Chinese probably have their own national foreign policy interests in play with the move, the acts of the United States Congress and President have given them the opening to play the concerned investor. So far this year, the deficit of the United States is around $958 billion at the halfway mark of the fiscal year. If the trend holds, this year’s deficit could top $1.9 trillion dollars. Let that sink in. Not since World War II has the deficit been such a large percentage of the nation’s Gross National Product. The overall debt the United States federal government owes is around $11.2 trillion, and could hit the $12 trillion mark by end of the fiscal year in October.

While those numbers are staggering, the Congressional Budget Office sees them getting worse. According to the CBO, by 2019, the debt of the United States will be over eighty percent of the Gross National Product. That is a recipe for complete financial collapse.

With foreign investors backing off financing the federal debt, the Federal Reserve is forced to buy up more and of the federal debt, which will eventually put inflationary pressures upon the American economy. If the United States chooses to print money to finance its deficit spending, inflation will come.

China knows that. They have traditionally been a patient and courteous people as they work to destroy their perceived enemies’ strengths. The military of the United States is strong, however the economic engine of the United States is what makes it a power that can force its way into any issue it chooses around the world. Perhaps destroying our strength is what the Chinese are up to.

It is a good plan when one thinks on it. First, China creates an atmosphere in which it sells cheap goods to the United States, leaving the United States with a smaller and less diverse manufacturing base. Then, China takes the hard currency it got from selling the goods to the United States to help the government of the United States finance its debt. Then, China politely finds a reason that the world will generally accept to stop financing the American debt. China sits back and watches the United States fall into relative financial collapse. That relative collapse will result in the United States having a lesser role in world affairs, especially in China’s backyard. All the while, the American public keeps buying Chinese goods and worries about Islamic terrorism.

Further, it would not be surprising if before the collapse, China came to the United States and offered to help continuing the financing of the national debt as long we stopped defending Taiwan’s interests.

The United States is one helluva financial fix. Even a booming economy could not erase trillions of dollars of debt overnight. Years of having a federal government bought and paid for by the lobbyists and ran by the highly paid political operatives who fight for this and that money have lead to extraordinary over spending, over taxation and the once most powerful nation in the world facing the harsh reality that foreign investors who do not have the interests of the United States at heart could be in a position to dictate terms.

Yet, you will not read about such in most American news media outlets. They are more worried about gay rights, what Obama named his dog, or who got voted off American Idol. There are stark defense issues not being discussed at large as well, and VUI will address those in a future post.

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