I have been very worried about the Chinese for a long time. I had always suspected them of deep political motivations with their gargantuan trade surpluses, most of which they reinvest into US Treasury bonds.
Most officials took up the party’s injunction to make money with considerable aplomb, chanting ‘Long live Chairman Mao’ all the way to the bank, so unless you were an American manufacturer or worker there was nothing to worry about. We all have to make our little sacrifices for globalization, after all, and losing your shirt factory is a small price to pay for global efficient markets, as any economist will tell you – at least until they start outsourcing economic research departments to Asia.
But I do worry about the guys in the Forbidden City who were too busy running China to make shirts for Bloomingdales and US flags for Wal-Mart. It is puzzling that apart from the Chinese and their neighbors, the only other customer for US T-bonds is the US Social Security system – which has no option, as by law it has to buy them.
It’s as fishy as a second-hand mackerel that the Chinese leadership would choose to put its hundreds of billions in such a dubious piggy bank. Why would it want to carry on buying bonds after the US president said publicly that they are ‘just IOUs’ when he visited the administration offices of Social Security earlier this year? Bush probably lost the Social Security debate with that comment, and we’re lucky he didn’t cause a run on the banks. After all, what is a dollar bill but an IOU issued by the federal government?
But back to China, where all trade routes now lead. In July a bellicose old-school Chinese general threatened nuclear war against the US over Taiwan. Before Bush’s IOU announcement, sophisticated People’s Liberation Army comrades would have warned their bigmouthed colleague that the officers’ pension fund was invested in dollar bonds and he should prepare himself for an unhappy and impecunious old age if he did not shut up.
Others would have warned him he was risking Beijing’s secret deterrent. After all, the Chinese nuclear deterrent became obsolete once it became obvious that a quick phone call from Premier Hu to his Treasury department with the order ‘Sell!’ would cause far more damage to the US than any amount of nukes China could throw.
If these bonds are just IOUs that are not legally enforceable, however, then Beijing will have to go back to square one and get the blue touch papers on the rockets all primed and fizzing to go. It has nothing to lose – and no financial leverage with Washington – if it’s only worthless paper it is incinerating and radiating.
So we should really be profoundly relieved at the Chinese decision to start investing its surpluses in American companies such as Unocal and Maytag. May it soon take over General Motors and Wal-Mart, too.
After all, if what’s good for General Motors is good for China, the concept of shareholder value may hold off the last of the long marchers who think that there’s nothing like a few megatons dropping on Taiwanese and American heads to promote proletarian nternationalism.
