China tells US to get debt under control. If US could take a hint, its politicians should imagine a scenario, where Chinese financial inspectors come to US banks and US government to inspect/audit the accuracy of the books, much like US inspectors inspect Chinese made products for lead in Chinese factories.
Crazy? Why not? China is now a $1.5 Trillion investor in the US economy and currency, and is facing potential losses on bad management and indeed some confidence rigging in the US economy.
Granted, China may not yet call on US’s bluff by “dumping” 100% of US treasury, causing a bad chain reaction across the world, that would be impractical and dangerous. For the very least, it may turn world opinion against China. So China must play the prudent hand regardless of political reasons.
For the moment, the US Bubble Economy (still bubbling), remains somewhat “too big to fail” in public.
However, I suspect, China has already played a silent tactical hand to hedge its eventual long term bets.
The interesting part, China learned this hand from Western nations, especially US.
What’s the hand, you ask? Simply put, mask a bubble with another bubble, and to quote Charles Dicken’s “Great Expectations”, “Always get hold of portable property”.
The China doomsayers have noted that China’s inflation is going up, and China’s banks seem to be spending way too much money on all sort of construction projects that China doesn’t seem to need. All of that is building up to a bubble inside of China, independent of China’s $1.5 Trillion US treasury holding.
Seems illogical that a country would create another bubble, when it might also inherit the bubble of another country. Shouldn’t China save up to shore up? Instead China is spending money like mad.
But there is method in madness. Look at the US banks, they knew the sub-prime loans they had were risky, so they repackaged them into derivatives and sold them off, trading risky instruments for safe money, (and even betting on the derivatives to FAIL). That’s making money from the downturn.
Unethical it seems, there is the basic lessons of how to pass a risky instrument out of one’s pocket. That being, trade it for something more valuable.
So what does China do? Spend money, buying things, building homes, factories, roads, trains, resources, ie. “portable property”.
Why? Sure, those houses may be a glut in China now, but when the savings become worthless, those houses will be valuable. And when the US dollar value takes a dive, it’s the factories that are worth the money.
It is like preparing for end of the world. Money, even gold and diamond will become worthless, then it’s the water, food, and weapons that are the most valuable.
So, why keep worthless money around, instead buy up property. And China is getting ready to spend its own currency RMB in other countries, to buy up things in massive quantities, by increasing RMB exchange amount in the world.
Hey, I’m not saying, and China does not want, a total US economic melt down, but in case it does happen, China wants to be prepared, with LOADS of property and jobs on hand.
Then, that $1.5 Trillion US treasury may turn into paper waste, but Chinese factories and companies will still have business, making things, paying salaries, and there will be loads of cheap houses for Chinese workers.
It’s better than to lose all the savings AND have nothing else.
When you have worthless money, SPEND them before you are stuck with them!