What are your thoughts on China's power over the US economy?

Question

I just read a fairly scary article in the Telegraph that I wanted to pass on to the rest of you.  What are your thoughts about the current trade imbalance with China and their control of so much us debt?

Anyone have any predictions about where things go from here?

Here's the article:
China threatens 'nuclear option' of dollar sales

Jon C · Answer

I think the term free market is an oxymoron and for our leaders to refer to it as our savour is vague and pathetic. Short term greed along with a huge K street power grab has give the Chinese an incredible opportunity to affect change on our economy.  Just how  important are people in our country and who's supposed to be watching out to make sure our best interests are served?

There's probably some rule about politics so I'll stop here. I think I've made my position pretty clear though.

United States of Wal-Mart :roll:

Frank Adams · Answer

I've been a bit worried about their growing economic power for years. The term for a nation that ends up with all its assets owned by a foreign power is "colony".

Anyone who hasn't already read; "The World is Flat" (Thomas Friedman), "American Theocracy" (Kevin Phillips) should do so. The latter deals with a lot of other topics but talks a bit about how other countries that "ruled the world" did so because of their leading position controlling the major source of energy during that time. For a refresher on world/European history:

14th-17th century. Dutch, masters of wind power, strongest merchant fleet.

18th-early 19th century. Great Britain, rise of coal power, not only for their industrial plants but also their navy and merchant fleet.

20th-early 21st century. Our leading role in the extraction and refining of petroleum products propelled our economy to the number 1 position in the world. It didn't hurt that we were untouched by the devastation of our industrial base during WWII. Although in hindsight the long term advantage of having your plants flattened by American bombers meant that Germany and Japan had all new, high productivity plants by the '70s on while American plants (due to poor economic policy) were old and losing the productivity battle.

The reason that China holds so much of our debt is simple. Our politicians want to keep getting reelected. As long as money is cheap, and the economy is good they generally get what they want. IIRC fewer than 70 House seats are considered "competitive".

The last time I saw Thomas Friedman interviewed he alluded to his next book, something along the lines of "Green is the new Red, White and Blue". He said that unfortunately being "green" is the US has somehow acquired the reputation of being, "wacky, leftist and a little bit French". Truly a shame because our refusal to embrace any sane energy policy has meant that in the "so called" War On Terror" we're funding both sides!

If OPEC decided tomorrow that they'd like to denominate oil in a "basket" of currencies we'd be in deep doo doo. Maybe that's why our politicians spend so much time sucking up to the Saudis.

all cash

Steve Nicewarner · Answer

I suspect there is a lot of bluster, and not much else. After all, if they start dumping all their securities, they Americans won't be able to afford the stuff we're importing from them. If their exports to the US collapse, then their economy follows ours into the tank. Perhaps not as far, or as fast, but then their government is more unstable than ours, so they need stability at least as much as we do.

Having said that, we do really need to work on the trade and budget deficits. Then we wouldn't even be in the position for the Chinese (or anyone else) to threaten us like that.

Account Closed · Answer

Most informed sources believe the report is largely bogus. That China has as much to lose as to gain from what the report said.

That said any times someone lends you a lot of money they have a bit of control. The fool is not China. By buying up US bonds they have been able to help keep the trade flowing from China to the US. The US consumer likes the deal as they get inexpensive stuff.

Individuals can choose to operate differently and largely avoid the issues of China owning the US. Individuals can not turn around the situation.

John Corey