Quote :

"Russia proposed to China that the two nations should sell Fannie Mae and Freddie Mac bonds in 2008 to force the US government to bail out the giant mortgage-finance companies, former US Treasury secretary Hank Paulson has claimed. ... Mr Paulson said that he was told about the Russian plan when he was in Beijing for the Olympics in August 2008. Russia had gone to war with Georgia, a US ally, on August 8. “Russian officials had made a top-level approach to the Chinese, suggesting that together they might sell big chunks of their GSE holdings to force the US to use its emergency authorities to prop up these companies,” he said. Fannie and Freddie are known as GSEs or government sponsored enterprises. “The Chinese had declined to go along with the disruptive scheme, but the report was deeply troubling,” he said. A senior Russian official told the Financial Times that he could not comment on the allegation. "

- http://www.ft.com/cms/s/0/ffd950c4-0d0a-11df-a2dc-00144feabdc0.html?nclick_check=1

It's like something out of a movie/video game. I hope our gov. has people thinking of warfare beyond just bombs. This type of pressure I think is only going to increase as the rest of the world becomes more developed.

1/30/2010 8:37:51 PM

COD: MW3

1/30/2010 8:49:24 PM

Yeah, it's pretty outrageous. I mean, how dare they not buy (and hold) our worthless debt? Don't they know that we can't maintain our luxurious American lifestyle unless their citizens work their ass off for 2 dollars an hour?

1/30/2010 9:09:47 PM

Quote :

"I hope our gov. has people thinking of warfare beyond just bombs."

ahahahahahahahaha, you give the government too much credit.



If there isn't a constituency asking for it, if a lobbyist doesn't want it or if someone isn't going to run for reelection on it, shit ain't happening.

1/30/2010 11:31:00 PM

Yeah, it's pretty outrageous. I mean, how dare they not buy (and hold) our worthless debt? Don't they know that we can't maintain our luxurious American lifestyle unless their citizens work their ass off for 2 dollars an hour?

1/31/2010 5:11:13 PM

Yeah, it's pretty outrageous. I mean, how dare they not buy (and hold) our worthless debt? Don't they know that we can't maintain our luxurious American lifestyle unless their citizens work their ass off for 2 dollars an hour?


Also, I believe the United States has already done this to Cuba...(economic warfare)

1/31/2010 6:17:15 PM

Yeah, it's pretty outrageous. I mean, how dare they not buy (and hold) our worthless debt? Don't they know that we can't maintain our luxurious American lifestyle unless their citizens work their ass off for 2 dollars an hour?

^ The only harm Cuba faces from America is a lack of tourism, which any self respecting socialist paradise would not want anyway.

1/31/2010 7:55:38 PM

^^We also also did it already to Russia.

1/31/2010 8:06:41 PM

Quote :

"^ The only harm Cuba faces from America is a lack of tourism, which any self respecting socialist paradise would not want anyway."

Cuba is stuck in the 1950's because of more than just lack of American tourists.

1/31/2010 9:27:17 PM

yeah that whole pinko government thing probably has a little bit to do with that.

1/31/2010 9:35:45 PM

it's not like our economic embargo has hurt them at all, whatsoever. btw, did you ever stop to ask why they still have that pinko gov't? it couldn't possibly be due to said gov't having a great scapegoat for all of that country's problems, could it? naaaaaaah

1/31/2010 10:04:36 PM

^ Quite true. But the question of moral culpability is not obvious. In effect, one child taunted another by refusing to talk to them, and that child as an attempted response shot himself in the foot. While this outcome may have been foreseeable, it still does not reach the level of blame. We did not do this to Cuba, Cubans did this to themselves, sort of a sixty year temper-tantrum.

That said, it is not like the embargo was unjust. The Cuban regime was suspected of killing more than a few American citizens in their military takeover, not to mention violating the human rights of millions of American citizens. So a political response was necessary, it just should have stopped at seizing Cuba's foreign assets, as embargoes are a curtailment of the rights of Americans, not Cubans.

[Edited on February 1, 2010 at 9:31 AM. Reason : .,.]

2/1/2010 9:26:02 AM

If we are concerned at all about the citizens of Cuba, we'd end the embargo. No questions asked. There's absolutely no reason to continue that policy.

2/1/2010 9:28:32 AM

^ agreed with that.

2/1/2010 9:34:28 AM

Quote :

"Yeah, it's pretty outrageous. I mean, how dare they not buy (and hold) our worthless debt?"

I don't know about worthless. US bonds proved to be an especially safe investment over the past years.

2/3/2010 12:06:02 AM

So did buying a house, until until it wasn't anymore. I seriously doubt the American people would tolerate the loss of their currency, so when a debt crises arises a few decades from now I believe the government will repudiate its debt to the cheers of libertarians everywhere.

2/3/2010 3:42:06 AM

There will be a lot of clamoring and cheering in basements across the land

2/3/2010 4:00:15 AM

Quote :

"I don't know about worthless. US bonds proved to be an especially safe investment over the past years."

In a normal economy, bonds are a safe investment. It's almost a guaranteed return, because you know the government isn't going to go out of business. Bonds are only good if you have a stable currency, though.

When we talk about "borrowing from China," what we're talking about is China buying our bonds. We've been running budget deficits for a while. When we run a deficit, it's not as simple as printing the difference, as some would suggest. The politicians would like to print the money themselves, but it'd be too obvious. The Treasury has to come up with the money somehow. Bonds are how they do it. For a long time, China has been purchasing a lot of the bonds we put up for sale, effectively "purchasing" our debt. There's reason to believe that China will not continue to do this forever. Their central bankers have said they won't.

Eventually, we're going to run another record deficit. The deficit this year will be somewhere between 1.2 and 2 trillion USD. The Treasury is going to have one of these bond auctions, and no one is going to show up. At that point, they'll turn to the Federal Reserve. The Federal Reserve already purchases bonds - "quantitative easing," as they call it. When the Fed is the only buyer, that's when the shit hits the fan. It's good ole fashion money printing, just with more middlemen, and no longer limited by the printing presses, since the money will just be created in a computer somewhere.

LoneSnark seems to think that the scenario in which these actions would be necessary is a couple or a few decades off. I hope he's right, but China has the power to pull the plug on this ponzi scheme operation at any time. Americans act as if we're in the position to give China the finger, but they're our life support. For us to wage economic warfare on the Chinese is like someone with a mortgage waging war on the bank. The bank can just take the home back, and the borrower will be out on the street.

To go back, there is a possibility that we would not engage in massive "quantitative easing" when China stops buying bonds, and we would default instead. LoneSnark's point is that people wouldn't stand for massive inflation, and would prefer that we repudiate the debt. If we get the right people in office, this is what would happen. If we get more Obama-like politicians in office, we're going to destroy the currency. No one wants to hit the brakes on the gravy train, but there's no light at the end of this tunnel, only a solid brick wall.

[Edited on February 3, 2010 at 9:32 AM. Reason : ]

2/3/2010 9:28:09 AM

Quote :

"LoneSnark seems to think that the scenario in which these actions would be necessary is a couple or a few decades off. I hope he's right, but China has the power to pull the plug on this ponzi scheme operation at any time. Americans act as if we're in the position to give China the finger, but they're our life support. For us to wage economic warfare on the Chinese is like someone with a mortgage waging war on the bank. The bank can just take the home back, and the borrower will be out on the street."

Yet I would argue that this is less of a situation where one side is at the mercy of another but one where both sides, despite being suspicious of each other, both know that they need each other to survive. Interdependence is the term. Yes, the Chinese could pull the trigger and dump our bonds, but if they bring down the American economy, we'll bring them down with us. Yes, they've diversified their trading partners and have begun boosting domestic consumption, but we're still one of their largest markets, and the collapse of our imports of Chinese goods would be a huge blow to them.

Also, if I understand correctly, the Chinese need to buy US Bonds in particular to maintain their currency exchange rates. If they stop buying American bonds, wouldn't that cause a rapid rise in the currency and undermine their export advantages? This would be a disaster for them as their labor advantage, based upon manipulated currency exchange rates, would disappear.

2/3/2010 10:38:50 AM

Yes, China benefits from subsidizing our economy in a way, but it's really not a good deal for them. Peter Schiff uses the analogy of a group of people getting stuck on an island. They have to divide up the work in order to survive. Of the group, there's a bunch of Asians, and one American. One guy is a hunter, another guy grows food, one person builds the huts, etc. So they all have jobs. And the American's job is to eat. He just sits there, the rest of the people do the work, then they bring whatever they've worked for to the American to consume. You could say that the Asians are benefiting, because they're employed. They'd benefit even more if they kicked the American off the island, though, because then maybe they could enjoy the fruits of their labor, and they could do a little consumption of their own.

Quote :

"Also, if I understand correctly, the Chinese need to buy US Bonds in particular to maintain their currency exchange rates. If they stop buying American bonds, wouldn't that cause a rapid rise in the currency and undermine their export advantages? This would be a disaster for them as their labor advantage, based upon manipulated currency exchange rates, would disappear. "

Right. The RMB is pegged to the dollar right now. If it wasn't pegged, it would be allowed to rise. It would be bad in the sense that their export advantage would diminish, but the purchasing power of their currency would go up, which would be a net gain for the Chinese people.

2/3/2010 10:52:47 AM

Yet I don't think Peter Schiff's analogy works well. The Americans aren't just simply consuming goods for free, we're exchanging resources (capital, processes, technology, etc.) for those goods. This is a mutually beneficial arrangement because they are getting the resources required to develop their economies. Also, for the sheer amount that these Asian nations are producing, there is no way that their own economies can absorb all those goods and services. Whether or not those fruits are being enjoyed equally on the Asian side or this arrangement is healthy in the long run is a different debate, but this is by no means an unequal relationship.

Don't understate employment either: high unemployment ensures social stability and a dramatic improvement of the quality of life for these nations. I think they would all agree that they are thoroughly enjoying the fruits of their labor. Japan was burned to the ground back at the end of the 1940s. The ROK was a backwards, third world country in the late 1960s. The PRC had nearly ceased to function as a state let alone cohesive society at the end of the Cultural Revolution. The first two nations now enjoy industrialized nations' standards of living, and the Chinese are catching up as well. Heck, if anything, they are holding back the best of their products for their own domestic consumption first.

Quote :

"It would be bad in the sense that their export advantage would diminish, but the purchasing power of their currency would go up, which would be a net gain for the Chinese people."

I would dispute this given the current state of the Chinese economy: while your calculus is probably true for a highly developed, industrialized state, the PRC is still a developing nation with an export driven economy. The PRC is still heavily reliant upon exports to provide employment for their huge population. If their currency shifts, it would lead to the unemployment of tens of millions of people and the social instability that creates. At the same time, the number of people at this time who have the currency to enjoy the benefits of a stronger currency are still smaller in number. That is one of the big reasons why the Chinese have been so adamant about keeping the rise of its currency as slow as possible, much to the frustration not only of Western nations but developing nations that are behind China whose currency advantages are undermined by the Chinese.

2/3/2010 11:37:59 AM

Quote :

"high unemployment ensures social stability and a dramatic improvement of the quality of life for these nations."

isn't that backwards?

2/3/2010 12:34:15 PM

My bad. Meant 'high employment'... When I was writing it, I was thinking "high employment" and "low unemployment" at the same time...

[Edited on February 3, 2010 at 1:15 PM. Reason : ]

2/3/2010 1:14:43 PM

While true, cause and effect are being misunderstood. The Chinese exchange rate policy does not boost export demand directly, as the mechanism requires them to print money and use it to buy dollar denominated debt instruments. The increased boost to demand is no different than if the Chinese took those same printing press dollars to fund the government, slashing taxes. As such, the Chinese are funneling their new money through us, but only because it builds dollar reserves, which they want for very good reasons. But the effect is the same, increased demand, and significant domestic inflation (30+%).

2/3/2010 5:15:45 PM

Quote :

"So did buying a house, until until it wasn't anymore."

The housing market has never been as safe as bonds, everyone knows this.

Quote :

"When we talk about "borrowing from China," what we're talking about is China buying our bonds."

Just a quick question, who is the largest holder of US bonds?

Quote :

"There's reason to believe that China will not continue to do this forever. Their central bankers have said they won't."

They've already slowed down, and others are happy to pick up the slack.

Quote :

"China has the power to pull the plug on this ponzi scheme operation at any time"

Well it would hurt them way more than it would hurt us. China has absolutely no reason to commit economic suicide, and it's doubtful that they will within the next decade either.

2/3/2010 7:10:45 PM