I posted last week about the growing unease of the Chinese Central Bank toward its US investments. Now China (along with Russia) has manifested its unease with a call for a new global currency, led by the International Monetary Fund. As scary as this notion is, I wanted to highlight the growing unease with the US dollar. While it appears unlikely that China is willing to take an investment hit in order the skewer the US, it is clearly setting up for a dramatic shift away from supporting the issuance of dollar debt.
How China Sees the World (Economist.com)
China understands that the only way for the US to service its debt is through monetization. It’s unlikely that they ever imagined a US recession would lead to this type of monetary expansion:
As the US dollar currency in circulation approaches $1 trillion, China is finally trying to find a new safe haven for cash.
Is it likely that we will see another Bretton Woods soon? I don’t think as it stands now. But maybe, just maybe, China is setting the framework for a future day when it dumps its treasuries and punishes the US. This certainly would be painful for Beijing, but what is this investment actually worth anyway? It may be the perfect catalyst for a Shanghai version of Bretton Woods in 2010. Could a new currency order with China leading the way be worth its investment loss?
Teacherman Federal Reserve, Inflation bretton woods, china, debt, dollar, global currency
The Obama administration took steps over the weekend to reassure the Chinese government that its investment in US treasuries was sound. The Chinese primier Wen Jiabao had shared his trepidation over the potential decline in the US dollar. A former Chinese central bank advisor complained the administration’s reckless policies are eroding China’s investment in US treasuries.
We really have to stop and note the irony here. We have a communist country chiding what is supposedly the world’s great bastion of capitalism on government spending. Even more indicative of the situation is the clear power the Chinese government over this country, as the administration rushed to reassure the Chinese that all is well. I doubt that China will dump its US treasuries en masse, but I think that this does signal that the credit gravy train for the US government may be coming to an end, let’s hope so anyway. Admittedly, all signs up until now have pointed to the contrary as China has continued to gobble up treasuries in recent months. There perhaps is some false hope that China’s reluctance to purchase US debt will keep government spending in check. Ok, fine, keyword false.
Teacherman Government Spending, Inflation, Politics capitalism, china, communist, obama, treasuries
In case you missed this classic story in the news yesterday, Secretary of Education is encouraging local school districts to spends the stiumlus money fast (emphasis added).
The Department of Education’s ‘five-page guidance’ manual actually says, “Spend funds quickly to save and create jobs…”
I was thinking of some more appropriate endings to that statement, here’s my top 5:
1) Spend funds quickly to ensure there is nothing left when the dollar becomes worthless.
2) Spend funds quickly before Congress realizes cuts in education spending actually may improve school efficiency.
3) Spend funds quickly to let China know that we are putting its money to good use.
4) Spend funds quickly so we can hurry up and get some more! This is way better than actual budget balancing!
5) Spend funds quickly before people realize that more money doesn’t actually mean better schools.
Teacherman Government Spending, Interventionism, Politics arne duncan, budget, china, education, stimulus
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