Of course, what the Chinese are worried about is not that the United States government will default on its bonds. That obviously won’t happen. The Chinese concern, now being expressed openly for the first time, is that the U.S. will adopt the standard debtor’s remedy of inflating its currency and paying back its debts in shrunken dollars. Why are the Chinese worried about this? Because Barack Obama’s budget proposes to borrow trillions of dollars, injecting them into the U.S. economy without any offsetting wealth being created. The inevitable result, as any economist not in the pay of the Obama administration or the Democratic Party will tell you, is inflation.
For years, various scaremongers on the right and left warned us that selling so much debt to China would mean surrendering some of our sovereignty to Beijing. Usually, the warning was that we’d lose control of our foreign policy — China would invade Taiwan, then threaten to dump US securities if we sent the 7th Fleet anywhere near the Taiwan Straits. American foreign policy hobbled by foreigners? “It would be the end of the world!”
Instead, China might just be proving helpful on our domestic front.
When inflation strikes, borrowers benefit and lenders take it
right in the nads on the chin. And, well, China is one big-ass lender to the US. And now they’re warning us, quite publicly, that they’re not very fond of the idea of us inflating away the savings they have socked away the last thirty years. Can’t blame a country for that, can you? And you certainly can’t blame Beijing for reminding Washington, somewhat subtly, that if we can destroy their holdings, they can ruin our credit. Since American voters show no willingness or ability to rein in Washington, it’s up to China to provide a little tug on the leash.
It’s the end of the world — and I feel fine.