Sunday, February 22, 2009

Why Beg The Chinese?

I really don't see a reason to beg the Chinese to purchase US Treasuries:
"US Secretary of State Hillary Clinton Sunday urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.

Clinton made the plea shortly before leaving China, the final stop on a four-nation Asian tour that also took her to Japan, Indonesia and South Korea, where she worked the crowds to try to restore America's standing abroad.

In Beijing, she called on authorities in Beijing to continue buying US Treasuries, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods.
This is so fundamentally flawed that I question either the intelligence or honesty of US government officials who offer such reasoning.

The Chinese will buy US debt if it is in their best interest to do so. That is, if the risk-adjusted return is better than competing investments, they will buy it. If it is not, they will not. It is that simple. But, here is another clueless platitude:
'By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,' Clinton said at the US embassy here."


At Sunday, February 22, 2009 10:13:00 PM, Anonymous Anonymous said...

I am having a hard time buying the argument that it is in OUR best interest for the Chinese to buy US debt- forget the Chinese. All this talk about developing self-sufficiency in vital resources and we're essentially outsourcing the value our currency? Dumb.

At Monday, February 23, 2009 8:16:00 PM, Blogger Jim VAT said...

In order to think clearly about this issue, contemplate the following questions: Do you worry about Texans buying California's debt? If not, why not? Shouldn't Californians be independent and not accept money from Texans?

If Taiwan became the 51st state, would you worry about people on that island buying US debt?

The point is political boundaries are artificial in the context of economics. It really does not matter if a person in Texas buys US debt or a person in Shanghai. Regardless of nationality or ethnicity, those that are productive and have additional capital will lend it to those that desire it and can pay a return.

And frankly, in the end the Chinese will regret lending money to us because we cannot pay it back.


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