Twofish's Blog

July 12, 2008

Financial mutually assured destruction

Filed under: china, finance — Tags: , , , — twofish @ 5:25 pm

http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/

don’t think that owning large amounts of US debt gives China that much leverage over US policy decisions. It’s very easy to think of ways that China could destroy the US economy. It’s hard to think of ways that China could destroy the US economy without destroying the Chinese economy.

The only scenario I can think of in which China would declare “economic war” on the US would be if it felt its national survival to be at risk, and the only plausible situation in which I can think of this happening is explicit US support for Taiwan independence. The fact that the Bush administration moderated its policies toward Taiwan between 2001 and now was I think driven in part by economic considerations, but that is the only issue I can point to where US debt played a part.

One other thing that economic considerations have played a part in is that Chinese holdings of US debt have eliminated whatever small support there is for a policy of “neo-conservative regime change.” There is no way that the US could fund a major effort at destabilizing the Chinese government (and a few thousand dollars to dissidents that everyone ignore doesn’t count) since that money comes from China.

One note is that the neo-conservatives were particularly idiots at economics, and the fact that they were such idiots and self-righteous, arrogant idiots meant that no one with the slightly amount of business sense would talk to them. So they ended up financing their “war for freedom” by borrowing massive amounts of money from the regimes that planned to eventually overthrow (Saudi, Russia, and China). The only good thing about this is that it discredited them before they could start World War III.

Just like having China embedded in the world financial system and dependent on the United States was intended to keep the idiots out of power in China, I think that having the US embedded in the world financial system and depedent on China keeps the worst idiots out of power in the US. So the influence that China has on US policy (which I might add is still nowhere near the influence that the US has on China policy) is IMHO, not a bad thing. (google for the term constrainment)

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1 Comment »

  1. Lunacy has not stopped some from using this as yet another pretext to promote “yellow peril” to the American public. The Chinese work for almost nothing and sell us stuff cheap, then turn around buy our worthless t-bills to support our bad habits like creating conflict and waging war.

    It’s like we are biting the hands that are helping us.

    Comment by Charles Liu — July 14, 2008 @ 11:19 pm


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