♠ Posted by Emmanuel in China,Credit Crisis
at 3/13/2009 09:05:00 AM
China's Premier "Shoeful" Wen Jiabao (in contrast to "Shoeless" Joe Jackson) appears to be footing some rather self-serving commentary on the PRC's economic situation. Other than reaffirming a rather unlikely 8% GDP growth target in 2009 which probably won't be reached unless the books are cooked even more severely than usual, he had this to say on China's assorted financial interests in America. From Reuters:The premier said Beijing expected to see results from President Barack Obama's economic recovery plan but expressed concern that massive U.S. deficit spending and near-zero interest rates would erode the value of China's huge U.S. bond holdings. China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets.A few thoughts:
"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries. "I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets," Wen said.
U.S. Secretary of State Hillary Clinton voiced her appreciation during a visit to Beijing last month of China's continuing "well-grounded confidence" in U.S. Treasuries. Any big switch by Beijing out of U.S. Treasury bonds would drive prices lower, inflicting the very losses Wen fears. Still, his remarks, along with the lure of surging share prices, helped depress U.S. Treasuries in Asia.
China's central bank weighed in later with criticism of America's "inappropriate" economic policies, including low savings and high consumption, and said the global crisis had its roots in what it called an unchecked issuance of dollars.
1. China keeps invoking non-intervention in other countries' affairs, especially when quizzed about Tibet, Burma, or Sudan. For this Nehruvian principle to hold, I suggest that it leave American monetary and fiscal policy to the, er, Americans.
2. When it comes to these sorts of economic relations, exit says more than voice (complaining) or loyalty in the vernacular of Albert Hirschman. If China were really "concerned" about the eventual haircut it will receive (via surefire dollar devaluation as a tsunami of treasuries is issued this year) on top of that which it has already lost (think Blackstone, Morgan Stanley, etc.), then it ought to consider some "portfolio diversification."
3. The point I am sick and tired of hammering in is this: China providing what Brad Setser estimates as $500B in dollar financing year in and year out has afforded the US to go on serial misadventures--Iraq and Afghanistan, the housing boom and bust, securitization, and now bailing out any and all comers. It's the ultimate "moral hazard": If China will buy whatever dreck the US will sell to finance the excesses China doesn't particularly like such as virtually all of the above, then it should just stop buying Treasuries. China is responsible for allowing "low savings and high consumption" to proliferate. Yes, it will lose money when the dollar slides as the PRC stops financing American's continuing jihad on fiscal sanity, but it'd be only saving up for a bigger loss further down the line.
This madness must stop. In the meantime, I am 0% sympathetic to China for indulging America's reckless behavior. You get what you deserve. With restless, jobless college grads hitting the streets, maybe the PRC should explain to them why the public purse has been used for such a monumental folly--one the likes our world has never seen before and hopefully will never see again.
