Premier Wen Jiabao's warnings solidified these fears.
mm, I think that he was mainly playing politics when he said this, like the article indicates, increasing the leverage China has over the US. The Chinese are too invested in their current growth model to stop buying US treasuries unless the US does something that infuriates them (support Tibet freedom movements, etc), but it is quite brilliant politically (and I mean this sincerely, not sarcastically!) how they come out with announcements like this once in a while, and the dollar plunges, and then days or weeks later there are vociferous declarations of support, and the dollar stabilizes. A show of power and a warning, imo, but ultimately just that, a show, a negotiation tactic, and the tipping point, if it comes, won't come from there (though I suspect the Chinese are practical and savvy enough not to stand in the way when it does come).
I mean, I know the US government can just print more money, and I realize I don't know much about economic theory, but there has to be consequences to just printing more money to pay your debts.
mm, it's not the printing money that concerns me as much as the way they're taking over illiquid and non-transparent debt, because there are consequences to just printing more money to pay debts but they vary according to the country doing this, and the US is powerful enough that it can make others bear a lot of the consequences. But some of the derivative instruments that the major banks have on and off their balance sheets - I don't think there's anyone in finance who isn't terrified of them, and the US is backstopping those too (in some of the stupidest and riskiest ways possible *MAKES FACES AT THE FED AND TREASURY*), counting on its social and political and reputational capital to bring it through, and I have to wonder whether it's going to be enough, because that, added to the massive budget deficits, added to other geopolitical unrest, added to a slumping housing market, added to any number of things that could happen... I don't know, we'll see.
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timeasmymeasure
no subject
Date: 2009-03-24 12:03 am (UTC)mm, I think that he was mainly playing politics when he said this, like the article indicates, increasing the leverage China has over the US. The Chinese are too invested in their current growth model to stop buying US treasuries unless the US does something that infuriates them (support Tibet freedom movements, etc), but it is quite brilliant politically (and I mean this sincerely, not sarcastically!) how they come out with announcements like this once in a while, and the dollar plunges, and then days or weeks later there are vociferous declarations of support, and the dollar stabilizes. A show of power and a warning, imo, but ultimately just that, a show, a negotiation tactic, and the tipping point, if it comes, won't come from there (though I suspect the Chinese are practical and savvy enough not to stand in the way when it does come).
I mean, I know the US government can just print more money, and I realize I don't know much about economic theory, but there has to be consequences to just printing more money to pay your debts.
mm, it's not the printing money that concerns me as much as the way they're taking over illiquid and non-transparent debt, because there are consequences to just printing more money to pay debts but they vary according to the country doing this, and the US is powerful enough that it can make others bear a lot of the consequences. But some of the derivative instruments that the major banks have on and off their balance sheets - I don't think there's anyone in finance who isn't terrified of them, and the US is backstopping those too (in some of the stupidest and riskiest ways possible *MAKES FACES AT THE FED AND TREASURY*), counting on its social and political and reputational capital to bring it through, and I have to wonder whether it's going to be enough, because that, added to the massive budget deficits, added to other geopolitical unrest, added to a slumping housing market, added to any number of things that could happen... I don't know, we'll see.