The real reason the CCP owning so much US debt is a bad thing

I really think Irwin Stelzer should know better. The Weekly Standard economics writer usually leans toward the “engagement” crowd when it comes to the Chinese Communist Party, but he always managed to steer clear of the Kool-Aid.

This time, though, he falls for a different myth, the debt myth.

China can easily turn that feeble recovery into a downturn by cutting back on purchases of U.S. treasury IOUs, driving interest rates up.

Leaving aside the fact that the Fed has told anyone who will listen that they will vacuum up as many T-bills as is required to keep interest rates near zero, Stelzer should know – as Gordon Chang does – that paper power is really a paper tiger.

No, the real problem with the CCP buying so much of our debt is that they can’t stop, meaning the traditional incentives to get serious about deficit reduction (the fear creditors will stop lending) doesn’t apply. Instead of firm warnings from Wall Street or the City (London), we have a regime desperate to keep lending us money in order to maintain their cheap currency and export sectors.

Thus, our day if reckoning will be delayed, but hurt that much harder when it finally comes.

Cross-posted to The China e-Lobby and the right-wing liberal


3 thoughts on “The real reason the CCP owning so much US debt is a bad thing

  1. China may own a lot of US debt, but it is pale in comparison to the Federal Reserve. In March 2011 the Federal Reserve passed China as the largest ‘private’ holder of US debt. Since then the Federal Reserve has bought 61 percent of Treasuries in 2011. This is up from negligible amounts prior to the 2008 financial crisis.

    Most people don’t realize but the amount of new US Government debt the Chinese and other foreigners have purchase has actually DROPPED from 6% of GDP in 2009 to less than 1% of GDP in 2011.

    The Fed is printing money and this is lead to disaster. Idiots run our country.

  2. Good info. Our day of reckoning is a day closer.

    I’m still waiting for our currently elected Republicans to get behind Paul Ryan’s modest proposal and start hammering away every day instead of letting Obama control the agenda. I realize Ryan’s budget doesn’t balance the budget to liking of many but let’s use the ammo that we have.

    Is our side really that afraid of offense or do they plan to keep it into cruise control and count on an Obamacare and economic backlash?

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