Is Hillary Playing the Yellow Menace Card?
I don’t know, but it sort of looks that way to me.
Markets to a certain degree will always be volatile, and to a great extent we are fortunate that our domestic markets are deep enough to absorb certain shocks. But what happened yesterday underscores the exposure of our economy to economic developments in countries like China. As we have been running trade and budget deficits, they have been buying our debt and in essence becoming our banker. While the President has touted recent improvements in the overall budget deficit picture, it is undeniable that the exponential growth of foreign debt in the last six years has undermined our economic standing. We have to curb these deficits and ensure foreign governments don’t own too much of our public debt and take steps to ensure that our economic well being is soundly in our own hands.
Frankly, I’m skepitcal that the Chinese will be able to exert such control over the U.S. economy given that the President and U.S. Congress don’t have that much control and they get to enact laws. Sure the Chinese could do something like dump all the debt they have been buying up, but once word of that got out, they’d quickly find that whatever they couldn’t sell would be worth far, far less than they paid for it. On top of it, such an action would likely be bad for the global economy and China does engage in lots of exports. This wouldn’t be a case of cutting off one’s nose to spite one’s face, but cutting off one’s head because one is a complete idiot.
Hillary’s plea for basing policy on facts not ideology strikes me as simply false. What she is proposing sounds very much like mercantilism and possibly some of the protectionist nonsense that goes with that ideology.
Here is an interesting article on this kind of stuff at Tech Central Station.
Tuesday’s market melt-down is exactly the sort of thing the Dobbs-Buchanan-Hillary Clinton-economic-school-of-nationalism loves to complain about. In fact, they just did; as I stepped away from my computer a moment to watch the news, I saw this letter from Hillary Clinton to the Treasury Secretary. China’s market crash causes a mini-crash here. Aha, they say, this is what’s wrong with globalism.
But I’m not sure they’ve really thought things through. After all, if a ten percent drop in the SSE, yields a three percent drop in the Dow, what would taking China completely out of the economic picture do? In other words, if the sino-screechers are right that trade with China leaves us vulnerable to downturns such as this week, then doesn’t that require them to believe that the run-up was due to the trade to begin with? If trade with China is to blame for the value lost on Tuesday, than it gets the credit for the value that was there before?
Unfortunately for Hillary this above is true. Frankly, I see this kind of inter-dependence as a good thing. If we are dependent on China and they us, then there is less incentive to do something like say get into a shooting war of Taiwan or some other hot spot in Asia.
Further, if Hillary is right that ownership of a large percentage of U.S. government debt makes the holder of that debt a danger…then shouldn’t she be most worried about the U.S. public? After all according to Hillary’s numbers about 56% of the debt is domestically owned. If those owners decided the game was up and sold their government bonds…well it would make whatever China could do look like a joke.
If all of this strikes you as worrying about the absurd…well we are talking about Hillary’s cogitations on economics.
If Hillary were serious about the threat of fiscal crisis, she would propose (1) to reduce the fiscal deficit to an amount close to zero (this solves the flow problem of the fiscal crisis), and (2) to force a significant reduction in the outstanding debt a la Argentina (this solves the stock problem; someone may say it’s not necessary, but it helps a lot when you solve the flow problem). But she’s not and therefore I don’t care about what she says.
Senator Clinton is exactly right. The US has become venerable to economic blackmail by China.
They don’t have to sell any of the US debt they own to hurt us, they can just stop buying any more. That, in the long run, would be far worse than if they just sold what they had but kept buying more at auction. If the bond market believed that such a huge buyer was out of the market the bond prices would not stop falling till calamity struck. Interest rates would soar, the dollar would tank, inflation would jump, and the economy would sink.
The security implications are similar to those we suffer with Saudi Arabia – we’re afraid to make them stop doing bad things like providing material and ideological support for alQaeda because they have control over the oil spigot. Hard to see this as a ‘benefit’.
We are handing them pieces of paper. The value of the paper is only that we promise that at some point in the future we will give them other pieces of paper for them. The only control we give them is in not saying “Any paper held by the Chinese is worthless”. And we don’t do that because we know in the future, we will want to get them to take more paper from us (and we get the cheap stereo and Christmas decorations in return). Hillary really needs to understand economics a bit better.
I think that Edgardo is about right on this one. Ms. Clinton is trying to get elected and she’s appealing to those in her own party who somehow think they’ll be better off if China holds fewer dollars. It’s mostly just huffing and puffing and doesn’t have a lot of relevance to what she’d actually do if elected.
But all of this misses the bigger question, is it really a good thing for the US to have so much debt? I mean the interest on the debt alone could fund all means tested welfare.
Why are we defending debt?
Well, Rick, actually I’d prefer that we’d spend less but Congress has shown absolutely no interest in doing that (to the degree that as far as most of Congress is concerned reducing the rate of growth is considered a spending cut even if the absolute amount of spending increases). This is a pretty successful strategy from Congress’s point of view since incumbents are re-elected again and again.
The choices are either we spend less, tax more, borrow more, or some combination of the above. If Congress absolutely refuses to cut spending, I think that as long as China is willing to buy U. S. bonds to ensure that we keep buying and Chinese unemployment stays low, I’d rather we allow them to keep right on doing it than raise taxes.
Oh, Rick, I missed something else in my comment: when did Congress agree to means-test all welfare? I think that most Democratic Congressmen would fight that one to their last breaths.