5 ms·

Chinese see U.S. debt as weapon

13 points by sree_nair 17y ago

jacquesm 17y ago
Don't tell me that they only thought that the Chinese might do something like that now, it's not as if that wasn't a predictable move. Of course the Chinese will use US debt as a weapon, just like the US would use it if the situation were reversed. Don't forget that Russia crashed because of being unable to keep up with the spending patterns of the US, not because of some moral overweight or military pressure. Their economic structure wasn't capable of matching the US and the Afghanistan war (the previous one, the one 9/11 was an outgrowth of) sealed the deal. The US is in between a rock and a hard place economically when confronted with China, a massive sell-off could destabilize the dollar to the point that traders would favour other currencies (most likely the Euro), and that would accelerate the fall. If you live in a glass house you should not throw with stones.
- sree_nair 17y ago
  "a massive sell-off could destabilize the dollar to the point that traders would favour other currencies (most likely the Euro), and that would accelerate the fall" >> I understand that you mean the fall of China. Can you elaborate?. How will traders favouring Euro is going to crush china?. (If they have already sold of the Treasurey Bonds, that is).
  - gjm11 17y ago
    Er, no, he means the fall of the US, or at least the fall of the US economy and/or the value of the US dollar.
    - sree_nair 17y ago
      oh!.i mis-understood his comment. Thanks for the clarification.
- yummyfajitas 17y ago
  If China declares unrestricted war, and attempts to use debta as a weapon, we have a very simple response: "Dear world, all T-Bills we sold to China are hereby repudiated in response to their hostile acts." Or, to paraphrase: When you owe China $1000, you've got a problem. When you owe China $800 billion, China has a problem.
  - euroclydon 17y ago
    How would that work exactly? China starts selling t-bills. Selling to whom? Buyers. Now non-Chinese buyers have the bills. Are those bills repudiated? Also, since the sell-off is a legitimate threat, it seems to follow that the market for t-bills is so liquid, that repudiating those bills belonging to one entity would be technically impossible.
    - yummyfajitas 17y ago
      Who will buy a debt that will not be repaid? T-Bills are tracked via the book entry system. I.e., the Treasury keeps a registry of who owns what debt. So all we need to do is repudiate all the debt that China currently owns. Then there will be no buyers.
      - BearOfNH 17y ago
        all we need to do is repudiate all the debt that China currently owns At which point every other holder of U.S. Treasuries will wonder "Am I next?". This will lead to a massive sales of U.S. debt instruments around the world, and would not be good for anyone.
        yummyfajitas 17y ago
        So China engages in open hostilities against us, and we tank their bonds. Now UBS will worry we will do the same to them, perhaps in response to Switzerland becoming hostile? Nomura dumps our bonds in anticipation of Japan going all 1942 on us?
  - 17y ago
- FahnRobier 17y ago
  China will use this as a negotiation point to further their agendas. The US has used this tactic before, notably in the Suez Canal crisis to keep Britain and France from attacking Egypt: http://www.fpri.org/enotes/200709.bracken.financialwarfare.html http://www.fpri.org/enotes/200709.bracken.financialwarfare.h... It's not in the best interests of China to cause massive inflation of the US Dollar, but it definitely gives them the ability to put short-term pressure on US politicians.
yannis 17y ago
At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face," Mr. Crowley said. "The economies of the United States and China are intertwined." The effect will be to lower the dollar value which would be good news. (That is how Argentina came out of its Debt Crisis). It will also drive manufacturing back to the United States, where it belonged in the first place. I always advocated that America should have imported the cheaper labor - like it did for many years - rather than exported the jobs. Bottom line wish for it, if you live in the States.
- hga 17y ago
  It wouldn't change the real value we have to pay externally for oil and so on. It's my semi-vague understanding that "competitive devaluations" don't work well. If by citing Argentina you're implying this is a solution to our debt problem ... well, that would be totally catastrophic in a nation where something like 70% of the wealth is in financial instruments. When countries cancel their debts by inflation, they also tend to "cancel" their system of government (i.e. it gets replaced, as happened in the US with the Continental Congress ("Not worth a Continental")).
  - yannis 17y ago
    It wouldn't change the real value we have to pay externally for oil and so on. Most of the oil producing countries have currencies pegged to the dollar and politically they are bound to stay with it. If you have a low dollar Chinese goods will become more expensive and consumption will go down. America wants a stronger Chinese Yuan and has been pressurizing the Chinese for this - in efect if the Chinese dump dollars America's wish will be granted. (A similar move saw America out of the First Oil Crisis). I thought the problem with the "Continental" currency was that it got devalued due to the British forging large amounts.
    - hga 17y ago
      "Peg" is a wrong word to use here, it's got the wrong connotations. Oil is priced in dollars: if you want to buy oil on the open market/from an OPEC nation, you have to pony up dollars to buy it. That says nothing about how many dollars are required ... e.g. look at what happened starting in the early '70s when Nixon closed the gold window. (I must say it's nice to be on a forum where I can reasonably expect people to know such references.) As for your second paragraph in toto ... I'm not sure the linkages will work that way. As for the Continental problem ... yeah, you could be right, I've certainly heard that was a factor, but the bottom line remains the same.
Estragon 17y ago
I pointed this out last month. Got downvoted, though. How long do you think Taiwan is going to last as an autonomous entity, now that it can no longer rely on the US for military support, because the US is in hock to the PRC? http://news.ycombinator.com/item?id=1050622 http://news.ycombinator.com/item?id=1050622
- hga 17y ago
  True, true ... but this threat only works if the PRC keeps buying our debt. If they stop, they have the problem of getting the outstanding debt redeemed or writing it off, and they are of no use to us going forward (at least in this narrow area).
- lionhearted 17y ago
  > How long do you think Taiwan is going to last as an autonomous entity, now that it can no longer rely on the US for military support, because the US is in hock to the PRC? I spent last month in Taiwan and asked this and similar questions to lots of smart Taiwanese people I know. The answer is complicated. There's a few points. 1. Chiang Kai-shek retreated to Taiwan in the first place because of the mountainous terrain. You'd take catastrophic losses attacking the place. This is the same reason Switzerland was able to stay neutral during all the various European wars over the last several centuries. 2. Some of the people of Taiwan want to have closer relations with China, open borders, and what not, but they'll almost certainly never be fully annexed into China. Population of China is 1.3 billion. Population of Taiwan ~23 million. So if they came to terms somehow, Taiwan would almost certainly keep their own local government control of the Formosa island, their own currency, and most likely their own separate military force. 3. Due to population differences, in anything resembling a democracy, Taiwan would have very little say over all of combined China's affairs, and combined China would have quite a lot of say over Taiwan's affairs. Thus, it probably won't happen any time soon, but more open borders and friendlier relations is likely.
hga 17y ago
A sort of side note: I suspect what's got the PLA really upset is the proposed sale of Patriot PAC-3s to the ROC (this is the dedicated ballistic missile killer version, with four smaller missiles in each launcher cell). You don't have to have a totally effective ABM system to make a first strike difficult to impossible, since your opponent can't choose which missiles get through. I.e. to be absolutely sure you take out a particular target, you have to massively saturate it ... and you can't afford to do that with all the first priority targets.
tcskeptic 17y ago
"A group of senior Chinese military officers" sees US debt as a weapon. Which of course they would, however, whether the civilian leadership shares their view is far less certain. I suspect that China's civilian leadership are far more worried about maintaining sufficient economic growth to avoid civil unrest and uprising, obliterating the US economy is about the last thing they will want to do.

13 points by sree_nair 17y ago

Don't tell me that they only thought that the Chinese might do something like that now, it's not as if that wasn't a predictable move. Of course the Chinese will use US debt as a weapon, just like the US would use it if the situation were reversed. Don't forget that Russia crashed because of being unable to keep up with the spending patterns of the US, not because of some moral overweight or military pressure. Their economic structure wasn't capable of matching the US and the Afghanistan war (the previous one, the one 9/11 was an outgrowth of) sealed the deal. The US is in between a rock and a hard place economically when confronted with China, a massive sell-off could destabilize the dollar to the point that traders would favour other currencies (most likely the Euro), and that would accelerate the fall. If you live in a glass house you should not throw with stones.

sree_nair 17y ago
"a massive sell-off could destabilize the dollar to the point that traders would favour other currencies (most likely the Euro), and that would accelerate the fall" >> I understand that you mean the fall of China. Can you elaborate?. How will traders favouring Euro is going to crush china?. (If they have already sold of the Treasurey Bonds, that is).
- gjm11 17y ago
  Er, no, he means the fall of the US, or at least the fall of the US economy and/or the value of the US dollar.
  - sree_nair 17y ago
    oh!.i mis-understood his comment. Thanks for the clarification.
yummyfajitas 17y ago
If China declares unrestricted war, and attempts to use debta as a weapon, we have a very simple response: "Dear world, all T-Bills we sold to China are hereby repudiated in response to their hostile acts." Or, to paraphrase: When you owe China $1000, you've got a problem. When you owe China $800 billion, China has a problem.
- euroclydon 17y ago
  How would that work exactly? China starts selling t-bills. Selling to whom? Buyers. Now non-Chinese buyers have the bills. Are those bills repudiated? Also, since the sell-off is a legitimate threat, it seems to follow that the market for t-bills is so liquid, that repudiating those bills belonging to one entity would be technically impossible.
  - yummyfajitas 17y ago
    Who will buy a debt that will not be repaid? T-Bills are tracked via the book entry system. I.e., the Treasury keeps a registry of who owns what debt. So all we need to do is repudiate all the debt that China currently owns. Then there will be no buyers.
    - BearOfNH 17y ago
      all we need to do is repudiate all the debt that China currently owns At which point every other holder of U.S. Treasuries will wonder "Am I next?". This will lead to a massive sales of U.S. debt instruments around the world, and would not be good for anyone.
      - yummyfajitas 17y ago
        So China engages in open hostilities against us, and we tank their bonds. Now UBS will worry we will do the same to them, perhaps in response to Switzerland becoming hostile? Nomura dumps our bonds in anticipation of Japan going all 1942 on us?
- 17y ago
FahnRobier 17y ago
China will use this as a negotiation point to further their agendas. The US has used this tactic before, notably in the Suez Canal crisis to keep Britain and France from attacking Egypt: http://www.fpri.org/enotes/200709.bracken.financialwarfare.html http://www.fpri.org/enotes/200709.bracken.financialwarfare.h... It's not in the best interests of China to cause massive inflation of the US Dollar, but it definitely gives them the ability to put short-term pressure on US politicians.

yannis 17y ago

At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face," Mr. Crowley said. "The economies of the United States and China are intertwined." The effect will be to lower the dollar value which would be good news. (That is how Argentina came out of its Debt Crisis). It will also drive manufacturing back to the United States, where it belonged in the first place. I always advocated that America should have imported the cheaper labor - like it did for many years - rather than exported the jobs. Bottom line wish for it, if you live in the States.

hga 17y ago
It wouldn't change the real value we have to pay externally for oil and so on. It's my semi-vague understanding that "competitive devaluations" don't work well. If by citing Argentina you're implying this is a solution to our debt problem ... well, that would be totally catastrophic in a nation where something like 70% of the wealth is in financial instruments. When countries cancel their debts by inflation, they also tend to "cancel" their system of government (i.e. it gets replaced, as happened in the US with the Continental Congress ("Not worth a Continental")).
- yannis 17y ago
  It wouldn't change the real value we have to pay externally for oil and so on. Most of the oil producing countries have currencies pegged to the dollar and politically they are bound to stay with it. If you have a low dollar Chinese goods will become more expensive and consumption will go down. America wants a stronger Chinese Yuan and has been pressurizing the Chinese for this - in efect if the Chinese dump dollars America's wish will be granted. (A similar move saw America out of the First Oil Crisis). I thought the problem with the "Continental" currency was that it got devalued due to the British forging large amounts.
  - hga 17y ago
    "Peg" is a wrong word to use here, it's got the wrong connotations. Oil is priced in dollars: if you want to buy oil on the open market/from an OPEC nation, you have to pony up dollars to buy it. That says nothing about how many dollars are required ... e.g. look at what happened starting in the early '70s when Nixon closed the gold window. (I must say it's nice to be on a forum where I can reasonably expect people to know such references.) As for your second paragraph in toto ... I'm not sure the linkages will work that way. As for the Continental problem ... yeah, you could be right, I've certainly heard that was a factor, but the bottom line remains the same.

Estragon 17y ago

I pointed this out last month. Got downvoted, though. How long do you think Taiwan is going to last as an autonomous entity, now that it can no longer rely on the US for military support, because the US is in hock to the PRC? http://news.ycombinator.com/item?id=1050622 http://news.ycombinator.com/item?id=1050622

hga 17y ago
True, true ... but this threat only works if the PRC keeps buying our debt. If they stop, they have the problem of getting the outstanding debt redeemed or writing it off, and they are of no use to us going forward (at least in this narrow area).
lionhearted 17y ago
> How long do you think Taiwan is going to last as an autonomous entity, now that it can no longer rely on the US for military support, because the US is in hock to the PRC? I spent last month in Taiwan and asked this and similar questions to lots of smart Taiwanese people I know. The answer is complicated. There's a few points. 1. Chiang Kai-shek retreated to Taiwan in the first place because of the mountainous terrain. You'd take catastrophic losses attacking the place. This is the same reason Switzerland was able to stay neutral during all the various European wars over the last several centuries. 2. Some of the people of Taiwan want to have closer relations with China, open borders, and what not, but they'll almost certainly never be fully annexed into China. Population of China is 1.3 billion. Population of Taiwan ~23 million. So if they came to terms somehow, Taiwan would almost certainly keep their own local government control of the Formosa island, their own currency, and most likely their own separate military force. 3. Due to population differences, in anything resembling a democracy, Taiwan would have very little say over all of combined China's affairs, and combined China would have quite a lot of say over Taiwan's affairs. Thus, it probably won't happen any time soon, but more open borders and friendlier relations is likely.

hga 17y ago

A sort of side note: I suspect what's got the PLA really upset is the proposed sale of Patriot PAC-3s to the ROC (this is the dedicated ballistic missile killer version, with four smaller missiles in each launcher cell). You don't have to have a totally effective ABM system to make a first strike difficult to impossible, since your opponent can't choose which missiles get through. I.e. to be absolutely sure you take out a particular target, you have to massively saturate it ... and you can't afford to do that with all the first priority targets.

tcskeptic 17y ago

"A group of senior Chinese military officers" sees US debt as a weapon. Which of course they would, however, whether the civilian leadership shares their view is far less certain. I suspect that China's civilian leadership are far more worried about maintaining sufficient economic growth to avoid civil unrest and uprising, obliterating the US economy is about the last thing they will want to do.