International Law

U.S. Congress Plays Up ?China As Scary Banker? Story

By Stan

Silly political theater, but worth a mention. Details from Asia Times:

The United States-China Congressional Committee focused last week on a nagging question that refuses to go away: does it matter if China is America’s bank? Or, said differently, what are the implications for American geopolitics given China’s enormous holdings of US Treasurys?

These things usually focus on what China might do to the U.S. if the two countries have serious conflicts in the future. At the outset, therefore, I’m already pissed off because the debate has been framed by the “inevitable conflict” crowd.

The threshhold question should be: does it matter if the U.S. debt is this high?

The next question: does it matter if U.S. debt is held by foreigners? What percentage is acceptable?

Only then, says I, should they turn to this: Does it matter whether China, as opposed to say Japan, is the top foreign holder of U.S. government debt?

The congressional committee hearings last week drew on a variety of experts, the majority of whom agreed with the broad consensus that a “balance of financial terror” – the phrase of Larry Summers, director of the White House’s National Economic Council – remains the appropriate way to describe the current US-China economic relationship.

What the f&@$ does that even mean? Seriously. I don’t think the use of the word “terror” in post-9/11 D.C. is very responsible. Thanks, Larry.

If someone could explain exactly what China could do, and might do, that would hurt the U.S., I would be more forgiving. But the only thing these folks talk about is some horror story of China selling off massive quantities of T-bills, driving up U.S. interest rates.

Sounds scary, but China is locked into a death grip (I like that better than ‘financial terror’) with the U.S. Any drop in the value of the dollar will be very costly to Beijing, and it seems to me that they will seek to avoid that possibility.

Washington should probably be more worried about what might happen to U.S. interest rates if at some point in the future, China rebalances its economy to such an extent that it stops running huge trade surpluses with America. Won’t be anytime soon, but then again, I don’t see the U.S. fiscal deficits disappearing anytime in the short run either.

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Full post as published by China Hearsay on March 03, 2010 (boomark / email).