Someone might want to explain this to me because it defies nearly all palatable logic that I can apply to it. I read earlier this week that China carries a large debt portfolio and that about 70% of it is American debt. Additionally, China is buying up American debt at break-neck speed, while possibly neglecting their own populace in order to do so.
As I was taught, there are two potentially profitable reasons to buy debt obligations. The first (and best) reason is because there is a reasonable expectation that the debt will be repaid, supported by documentation, collateral security, and research. The second reason is because there is an expectation that the debtor shall default, resulting in the expeditious seizure of pledged security assets that are desired.
I've become aware of an unsettling third scenario regarding the value of buying debt. You can easily use it to buy control of the debtor's assets through their weakness.
We can probably assume that the Chinese have heard rumors that American banks are writing off billions of dollars in debt-related losses. I'm guessing that it's no secret around the globe that American debt may currently be a sucker's bet. So are we to assume that Chinese financiers are ill-informed of the facts or shall we believe that they are just stupid? Is it simply a matter of Chinese bankers having a special talent for choosing safe debts to invest in? Should we think that the Chinese believe in us, or is this simply a matter of China's cheap purchase of global political power. I'm thinking that the latter explanation is the case.
To take the matter one step further, what happens if there is wholesale default on the treasury securities China has invested in? You must believe that our government is certainly facing that possibility. If the debts are owed by our government, does that mean China could have the sheriff evict our president from the White House in the event of default? Yeah, laugh now if you want to. Then stop and think about it again.
I fail to grasp the concept well, unless it's as obvious as it appears to be. In which case it would seem that China is knitting itself a massive catch-22. Why would you buy a position into financial stresses you helped create? Why would you purchase debt obligations as, by default, you thwart the ability to repay? It seems all too obvious to me that China has designs on the very soil you'll be buried in. The only problem is, in the process of taking control of American assets, they'll handily destroy the concepts of free enterprise and capitalism that have been essential in their rise toward dominance.
There's a bit of ironic justice beginning to show through the clouds now, and I'm desperate to see how it'll all play out. China's day of reckoning may be closer than you think. In the face of a very limp dollar, which actually makes us more competitive in the world markets, China is experiencing the need to raise the wholesale prices on their goods for export. Suffice it to say, this could play out well for us by breathing a bit of life into American light manufacturing, but only if it creates steady jobs that pay the labor force more than $12 per hour.
The single biggest problem we get when we invite communist governments to play the games of capitalism is that we always have to interrupt the fun to explain to them the probable outcomes. Generally, by the time they figure things out for themselves, it's already too late for them to put things into good order. Then we spend the next twelve or so years bailing them out of the messes they got themselves into. It's sort of like cutting our own throat with the knife they intend to sell to us.
The only new angle to the situation this time is that China and several other countries that hold no regard for free democratic society are now holding the mortgage to the farm. How long will it be before Congress no longer has the clout to stop them from calling that note due and payable? Will China then be buying our manufacturing base out from under us, financed by our own debt? My simple advice to you is this: Don't ever think it can't happen.











Reader Comments (Page 1 of 1)
2-02-2008 @ 3:31PM
Helen Newbury said...
Why is it that most American citizens do not realize that our country is possibly in the process of being "bought out" right from under us by foreign investors?
2-02-2008 @ 3:54PM
Craigicus said...
I think the formal strategy is mercantilist.
I see it as a street game:
Keep the dollar high and manufactured goods will be in high demand. If manufactured goods are in high demand, hundreds of millions of China's citizens are happy and hopeful. If the citizens are happy and hopeful, the government won't be trashed and replaced.
The owners of the yuan, yen, peso, mark, pound, etc. are getting their banks to buy massive amounts of US Treasury paper - so as to keep their currency down and the dollar up.
If the dollar goes down, many bad things can happen (all around the world) most especially if the dollar goes down fast. However, if the USA's products are 20% cheaper than they were not long ago, many industries in North America will be prospering.
2-02-2008 @ 5:39PM
Kevin said...
Well, if China does demand the payback of loans we can just glue some money on our nuclear weapons and launch the money to China.
2-02-2008 @ 7:37PM
moonie said...
Oh well it may be too late soon. i've been warning for years and it's this. First if we do not now start buying everything American that we possibly can which is now rare getting more rare) then we are going to sell our assests everyting we own to China and any other foreign government. Second the unions are already just about got us destroyed all our manufacturing has almost gone around the world.Third we are at the bottom in saving money at the top in credit card debt. Listen read all of the above and read every alphabet carefully and if you don't spread it all around the US to save us then we've had it and don't think it can't happen(sigh)
2-02-2008 @ 8:18PM
Richard said...
IMO the day of reckoning is when the credit bottoms out and the shelves are empty.
In the 1950s there was a popular analogy: If you dig a hole deep enough you'll go all the way to China. IMO we almost are there.
Rolling Stones fans might recall the album "Let It Bleed". That's another way of saying "We'll wait."
Yes, I am an old curmudgeon. I grew up in northern Indiana -- United States Steel country.
2-03-2008 @ 1:23AM
KenC said...
Dude, you've fallen off the deep end. The US Treasury will never default on its debt obligations. Look at the deficit as a percentage of GDP over the last 50 years. Then think about the nonsense you just wrote.
2-03-2008 @ 4:18AM
Terry Doyle said...
Do you remember the parable of the grasshopper and the ant. The United States is the grasshopper. China is the ant. How did that one end?
2-03-2008 @ 9:19AM
polkee said...
America- fat, lazy people controlled by greedy, self-absorbed, swellheaded, bickering politicians. Don't for a minute think China is stupid and does not have a plan to enrich itself at others expense. Their one-party tightly controlled system allows them to formulate such.
2-03-2008 @ 9:27AM
Hal said...
You people make me laugh! Has any of you been to China , have you any understanding of the world , we all live in.
China is more open more capital's now than ever and to run any kind of operation here one need's work HARD,BE STRIGHT FORWARD, AND NOT AFRIED OF GETTING THERE HANDS A LITTLE DIRTY, MAYBE us American's should understand the reason we became great, though hard work and not wanting everything under the sun. and when we do a job do it well, and not want 3 mo's off, 5 hour's for 8 jours work and over paid three cars 5-6 bed rooms, four bath's and everything in site.
Then maybe we would understAND THE REST OF THE WORLD has every right to what ever kind of freedom they choice not what we think is freedom which you and I have little of any longer. Look around the world and understand America is not alwyes the best. Gov makes law's and soon controls what when and how you do.Thanks for listen or reading
2-03-2008 @ 11:31AM
lance said...
well the clintons sold us out to china in 1994. hillary was on the board at walmart. now we are in this mess and she's running for president. i just pray she does not get in and make things worse. right now the country is on track to both adjust and get things right. we always have in the past. but..by signing that most favorable trade agreement in 1994...this is what caused the present situation. i just wonder what ole hillary will do next with the chinese. its rather odd that chinese business folks keep going to jail for giving her cash..but its barely a story in the hedlines.
2-03-2008 @ 11:06PM
fifi said...
American made:
http://www.fakebuddy.com
2-07-2008 @ 12:39AM
usawillsurvive said...
Since when did the word "communist" noy preceed the word "China" They have out-smarted us hands down. The Egyptians have the other half of what Communisr China does not have. It is very simple. Buy American...period...do not accept imitations.
2-07-2008 @ 12:39AM
usawillsurvive said...
Walmart or should it be China Mart?
2-07-2008 @ 5:37PM
ROBERT WESTBROOK said...
This info needs to go to the news media so that
they may educate the American people as to what
is real in the world.
2-08-2008 @ 7:42PM
Christian said...
Well, between the original article and all the comments exactly one person appears to not be a moron. Congrats KenC.
2-13-2008 @ 2:42PM
Ynot said...
``The consumer is not tapped out yet, which is what everyone had thought,'' said Andrew Seibert, who helps oversee $400 million at Nextier Wealth Management in Pittsburgh. ``The market is looking for every positive it can get at this point.'' I love how they call us fools right to our face and nobody pays attention. NOT TAPPED OUT YET. They won't be happy until they take your last penny. WAKE UP AMERICA!!!! The rich are playing us for fools. They don't lose. Only the ever decreasing middle class and the ever increasing poor lose. DEBT=SLAVERY
3-04-2008 @ 12:46AM
stan said...
I agree wholehartedly with Gary's statement. I have talked to friends for years about allowing the Chinese to hold so much of our debt. They are not stupid and I believe that they have every expectation of winning this game.
The unfortunate thing is that none of the three potential presidential candidates has mentioned our debt problem and won't because it doesn't fit in with their plans, which is to spend more money that we don't have. I believe that we are close to the tipping point regarding our ability to pay off these huge sums of money and if Americans don't start paying attention and start demanding change, we will eventually become a third world country in the not to distant future.
3-04-2008 @ 1:02AM
John A. said...
THE GOOD NEWS:
I've read both Mr. Sattlers eloquently written article and the responses made by the "bloggers" and I must say I'm proud to live in a country where we can exchange ideas and express ourselves without fear of punishment. There were some really good points on both sides of the fence and as a maturing 29 year old that is suddenly emerging in the "real world," I ate it all up so good job to everyone!
Now for the bad news. It frightens me how the general public is unaware of this. It concerns me that the media is spending more time chasing Britney Spears then they are in getting concret answers from our politicians about our economic crisis.
As for China, it's clear they're flexing their muscle. It's their way of competing with us as the next superpower. America needs to get back in touch with its roots and remember just how it got to be such a prosperous nation; Hard work,commitment and dedication.
At the risk of sounding close-minded, the last few decades have opened the doors to many uneducated, lazy foreign deadbeats in our country. Not only are they not contributing anything to society, they're sucking up others resources and I for one feel something needs to be done. While it may seem Anti-American, I feel if you live in this country you should be contributing to our society. Something tangible! If not, you're just taking up space and should reconsider your options. People on welfare still having children should be immediately cut off. Mandatory drug and alcohol testing should be provided each month people on SSI or Welfare pick up their checks. Where am I going with all this? I think America needs to look within for answers before we start blaming China for why we're in this mess. We as a country have become lazy, selfish, arrogant and seriously mislead.
I only pray more Americans are as informed and intellgient as most of you guys on this site!
(And for the record, I'm a Conservative Democrat- we do exist)
Love,
John
9-05-2008 @ 11:33AM
ckeck-mate said...
China:Population 1.4 billion.
India: " 1.2 billion.combine the middle classes of these two.demand for fine goods,food,energy,cars is beyond belief,we should stop wallowing and just hold our noses and dive in.
9-19-2008 @ 1:19PM
erwin said...
I think we are currently experiencing what mr. sattler said above with the collapse of lehman brothers, AIG bailout and who knows what else down the road. Then the US government will have to surrender all these assets to the Chinese at deep discounts.