Calling Our Bluff

Both Iran and China are taking the Labor Day Weekend to call our bluff. Iranian President Mahmoud Ahmadinejad, buoyed, no doubt, by his electoral victory has said that discussion of Iran’s nuclear development program is already finished:

TEHRAN (Reuters) – Iran’s president snubbed on Monday U.S. President Barack Obama’s end-September deadline to talk to world powers on its disputed nuclear program, saying in his opinion discussion on the issue is “finished.”

Mahmoud Ahmadinejad said the Islamic Republic was ready for dialogue on “challenges” facing the world but made clear Tehran would not back down in a dispute over atomic activities which the West fears are aimed at making bombs.

“From our view point (discussion of) our nuclear issue is finished … we will never negotiate on the Iranian nation’s obvious rights,” he told his first news conference since he was sworn into office following a disputed re-election in June.

and the Chinese have expressed concern about the rate at which our Treasury is borrowing:

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

The two situations are very different but each presents a challenge to the Obama Administration in its own way.

A keystone of the Obama Administration’s foreign policy has been a stated eagerness to negotiate. What if your correspondent isn’t interested in negotiating? In this case the challenge for President Obama is what next? Neither Russia nor China is likely to support additional sanctions on Iran but neither country may be willing to veto possible Security Council sanctions, either.

If the Chinese decide to diversify and put their new foreign reserves into gold or other currencies, the risk they’re running is probably higher than the additional risk they’ll impose on us. While the Chinese have been a factor in the U. S. Treasury’s continued ability to borrow, they haven’t been the only factor. If they flee from our Treasuries, they run the risk of ruining themselves by devaluing their own reserves. However, if they reduce their purchase of Treasuries cautiously, it could increase our cost of borrowing but it will also reduce their importance for us.

This in turn could have a number of implications. The beginning of the asset inflation that put us in the economic fix we’re in now can largely be dated to China’s establishing a de facto peg of the yuan to the dollar. And the reason that the Chinese began the practice was the problems they’d had in managing their own currency.

FILED UNDER: General
Dave Schuler
About Dave Schuler
Over the years Dave Schuler has worked as a martial arts instructor, a handyman, a musician, a cook, and a translator. He's owned his own company for the last thirty years and has a post-graduate degree in his field. He comes from a family of politicians, teachers, and vaudeville entertainers. All-in-all a pretty good preparation for blogging. He has contributed to OTB since November 2006 but mostly writes at his own blog, The Glittering Eye, which he started in March 2004.

Comments

  1. devildog666 says:

    A keystone of the Obama Administration’s foreign policy has been a stated eagerness to negotiate.

    Now that Ahmadinejad has made it perfectly clear whose boss; he can demand that Obama help him get rid of those pesky Israelis.

    We don’t need China’s money; we’re perfectly capable of printing our own. Argentina set the example. Wow, I bet in a couple of years my Jag will cost ten times what it does now. What a great investment.

  2. yetanotherjohn says:

    One large risk is that this administration is naive and inexperienced enough that they may think they see a way to kill two birds with one hand by reducing the debt through declaring the Chinese treasury bonds held as being zero value. Of course the repercussions of this would make where we are look like a picnic.

  3. Dave Schuler says:

    they may think they see a way to kill two birds with one hand by reducing the debt through declaring the Chinese treasury bonds held as being zero value

    Nah. The political fortunes of the Administration are too closely tied to borrowing for them to abrogate the debt.

  4. I don’t think China called our bluff, I think they bluffed.

    As for Iran I think we’d better just throw our nuclear umbrella over the Middle East and tell the Iranians that if anything that even looks slightly like some of their ordnance shows up anywhere outside of Iran we will wipe Persia from the map. UAD: Unilateral Assured Destruction.

  5. Spoker says:

    Barry and the boys should be thrilled to see this coming out of Iran. Iran is doing exactly what they were taught by the Alinsky tribe.

    Simply put…’Tough nuggies. We won so we can do whatever we want to!’ It is so inspiring to see Iran emulating the US administration…Not!

  6. Dave Schuler says:

    As for Iran I think we’d better just throw our nuclear umbrella over the Middle East and tell the Iranians that if anything that even looks slightly like some of their ordnance shows up anywhere outside of Iran we will wipe Persia from the map. UAD: Unilateral Assured Destruction.

    That has been my preferred solution to the general “peace in the Middle East” problem since the collapse of the Soviet Union. We should have simultaneously reduced our troop strength in the region and promulgated your UAD policy.

    I don’t think we have the stomach to make good on it.

  7. Gustopher says:

    I believe Ahmadinejad may just be signaling his desire for Israeli airstrikes of suspected nuclear installations, so he can use hatred of Israel and outside intervention to unite the Iranian people after all the election turmoil.

    And as far as China goes — they’re completely right, but about 8 years late to the game. Right now, we’re stuck running a deficit to keep the economy afloat, but there was no good reason to do so when the economy was booming.

    The next bubble to burst may well be the dollar.I think this is an excellent time to buy a house and convert your personal assets into debts, so someone else’s money will be cut in half by inflation.

  8. UAD would have to be stated clearly, be an entirely US decision without reference to the UN or our allies, and made into standing US doctrine. Forces would need to be tasked for the job. We would state a policy of using a mix of nuclear and conventional forces against military, government and industrial targets. And we’d sign treaties to that effect with Israel and such other nations as may wish to be covered.

    All of that makes it more credible. Might be enough to focus minds in Tehran.

  9. steve says:

    Sounds nice, but how is that much different than our current situation? I am assuming that Israel has its own nukes, enough to obliterate Iran. If Iran launches, how do they hit Israel without hitting important Muslim shrines and without being eradicated? What are the odds that we have not privately communicated the doctrine of UAD to Iran already?

    Bombing Iran is unlikely to slow down their nuke program very much. It would just unite the country. An invasion would be incredibly costly. We have no leverage with them. Best we can hope for is to try to resolve the Palestinian/Israeli mess and defuse the proxies. Scant hope that is also.

    Steve

  10. triumph says:

    Who cares. These people will never defeat real America, regardless of Hussein Obama’s intentions.

  11. An Interested Party says:

    Some around here seem to want to use this news as an opportunity to bash the president…I’m just curious, though…how does anyone see this situation playing out any differently if McCain had won last November or even, in some horrible alternate universe, if Bush were serving a third term…

  12. IP:

    The basics wouldn’t be any different. Obama’s outreach may at least offer an opportunity to dissident factions. McCain’s been an idiot on Iran.