next »

[aardvark]

1. Have any of you been paying attention to the recent visit of China's Premier Wen Jiabao to Japan?  Much of US foreign policy in this region is based on "containing" China with a ring of allies or partners (Japan, Singapore, Taiwan, S. Korea, Philippines, etc.).  China has been steadily improving relations with at least some of them, and China's influence in the region is growing almost continuously.  Since China's strategic concerns are regional and the USA's are global (though China's economic concerns are obviously global), China doesn't have to match the US dollar for dollar in military spending to threaten America's position in this region.  A thorough rapprochement with Japan and South Korea would seriously challenge American preeminence in this region.

2. Another thought:  given the fantasy of confronting China that many neoconservative writers were engaging 6-7 years ago (e.g., in journals like The National Interest), perhaps the war in Iraq has an upside:  arguably it has forced the US to be more judicious re: China. 

3. Is anyone worried about China (and Japan's) growing dollar reserve?  Or is this just an acceptable manifestation of a global economy?

4. Enthusiastic American that I am, I can't see any reason ever to move back as long as I want to remain an academic:  professors' lives are so much better here (at least when judged according to the things that I value).  That being the case, does it make sense that when my wife and I vote in the 2008 US election, we would be as concerned (or more concerned) with which candidates could benefit my part of the world as we are with which candidates could benefit my country of birth?

Just some thoughts...

[prytania3]

3. Is anyone worried about China (and Japan's) growing dollar reserve?  Or is this just an acceptable manifestation of a global economy?

This is ALL there is to worry about when it comes to China. They are going to flat out own us.

[aardvark]

3. Is anyone worried about China (and Japan's) growing dollar reserve?  Or is this just an acceptable manifestation of a global economy?

This is ALL there is to worry about when it comes to China. They are going to flat out own us.

Granted that there will be winners and losers in such a scenario, should I be against this on any economic rationale (leaving nationalism aside)?

[untenured]

3. Is anyone worried about China (and Japan's) growing dollar reserve?  Or is this just an acceptable manifestation of a global economy?

I think the answer to this question is .... YES!! From what little I understand of the notion, if China ever decides to "sell" its dollars the US economy will suffer enormously.  It's the financial equivalent of China having the United States by the proverbial nose.

Is there someone out there who can explain this better?

Untenured

[aardvark]

My thinking is that China's holding of American debt primarily gives China political leverage.  In terms of economics, yes, China could do a sudden sell-off but China can't afford to wreck the American economy because of the symbiotic relationship we have (i.e., by wrecking its market, it would wreck its own producer economy)

As for economics, I've seen several economists argue that American indebtedness-- regardless of who owns it-- is eventually going to push up interest rates a good bit, eventually taxes will rise, and in a "better case scenario" this will be a "soft landing" but that overall average American standards of living will go down.  Naturally, of course, all individual Americans have their own variable relationship to "average American standards of living"-- investors need not be hurt as badly as working class folks.  The "worse" or "worst case scenario," would be a major global slump/ crisis, but I don't think most economists are predicting that.

But looking at this not from an American but a global point of view:  an American loses a job, 2 Chinese gain one.  How is that supposed to influence my voting?

From a personal point of view, how will this impact my own livelihood? If American living standards decline, but the global economy keeps growing, then China will steadily move into other markets besides the American-- i.e., the percentage of exports going to America will decline while the percentage going elsewhere will rise.  (In fact, the percentage of Chinese goods going to their own domestic market will rise.  They're not going to keep their currency deflated forever; eventually they'll probably release some of those dollars in order to improve their workers' standard of living or create jobs, e.g., in response to an economic downturn or a political crisis).  Already the S&P 500 companies make over 40% of their revenues from non-American customers; if the American standard of living declines while other countries see theirs (on average) go up, then the "American" blue chip companies will make more and more of their money globally instead of domestically.

Leaving aside the "American" point of view (assuming there is one), from a global and a personal point of view the question is (I think) whether there will be a soft landing or a crisis.  The latter, of course, could happen because China or the US do something crazy-- like a war over Taiwan, or like China tanking the American economy without regard for its own).  But if it's a "soft landing," so that average American standards of living decline while Chinese, Korean, etc., go up (on average), then how is that a bad thing?

[clean]

It is not in their interest to sell.  
Certainly if they were to dump the treasury securities that they own the price of their bonds would drop.  And what would they get?  US $.  What can they do with those?  Sell them for other currencies?  Devaluing the dollar?  That increases the cost of their exports (do you want to buy a $500 DVD player that you used to buy for $100? no, and if we dont buy them, who will?  So what are all those newly unemployed Chinese workers going to do?).  Again, it is not in their interest.

SO, US interest rates rise.  The $ drops in value against the yen/euro etc.  
THEN the Japanese and Europeans see that they can buy the $ cheap and earn damn good interest rates.  So what do they do?  Buy the Dollar to buy bonds (we dont sell bonds for Euros)....

So there is a short (probably very short) increase in interest rates as the bonds go on sale (there is an inverse relation between price and interest rates), a decline in the $ vs the yen and euro, followed by a change in ownership of the debt as other foreigners and any other net savers buy the bargains.  

I am sure that there are better economists among us than am I, but that is my $.02.

(anybody know where my cents sign went?)

Clean

[untenured]

Ah clean, my finance friend, I knew I could count on you.

Could the Chinese sell their treasury securites for Euros on the secondary market and thereby mitigate the weakened dollar effect?

Untenured

[clean]

Sure it gets to the end a bit faster.

There was a move in the late 70s  (about the same time as the "China Syndrome") that depicted what would happen if the Saudi's sold all their US financial assets.

I dont remember the name.  It is certainly a highly fictionalized account that overplayed the end result.

Anyone remember?

clean

[helpful]

4. Enthusiastic American that I am, I can't see any reason ever to move back as long as I want to remain an academic:  professors' lives are so much better here (at least when judged according to the things that I value).  That being the case, does it make sense that when my wife and I vote in the 2008 US election, we would be as concerned (or more concerned) with which candidates could benefit my part of the world as we are with which candidates could benefit my country of birth?

Just some thoughts...

Your posting isn't clear as to where you are in the world. I am assuming you are not in the US but it is unclear, are you in Japan? China? Taiwan? Somewhere else?

In other words, which "part of the world" are you?

[aardvark]

china.

[draco]

There have been several posts thus far presenting each individual's take on complex issues, so rather than go point by point I'll just present my own take.

China has a large stake in US treasury bonds:  what this means is that Chinese policy could influence US policy based on the idea of who controls the purse strings controls the X....     What it could also means is that China places a lot of faith in the stable government of the US and realizes that the US is going to be around for a long time....  The US is an excellent investment because of assured steady growth (not the rapid rise and fall of "emerging markets" like China). 

This is NOT Cold War Part II.  The US has known that China would be a world contender ever since they successfully resisted colonialism in the Boxer Rebellion in the early 1900s.  The Chinese have gone through civil war, invasion by a major power (Japan), and communism (which still exists, but in a different form).  So now China is finally overcoming a  couple of centuries of a down cycle and is showing what they are really capable of.   The US has been engaging China (in a constructive way) for a very long time.  Think back to the early 70s when Nixon went to "Red" China....   He eventually de-recognized Tawain and re-recognized the PRC.  US engagement with China has led to tons of US businesses being directly involved in retail, in manufacturing, and in the daily lives of Chinese people. 

For us capitalists...we seek to conquer Chinese communism with American  capitalism...   The prescription is working! 

Since we have so much invested there, I wouldn't worry about currency issues....

China is more than willing to bankroll the US military (via treasury bonds), because it serves their interests in the global economy and keeps them from being perceived as the immediate colonialist power.

The REAL question should not be about China, but why does the US have to maintain its "Superpower" position.


I can go on, but I'm going to stop right here until I hear back from others...

[aardvark]

merigan, all that sounds good to me.  I place a lot of hope in the fact that China and the US have such a profitable relationship with each other-- and, more cynically, in the fact that they both have a significant amount of leverage over the other.  But the neocons' writings on China scare me a bit-- not because of what they say about China, but what they say about what *they'd* like to do to China.  And then there's the historical precedent that nation-states haven't always acted rationally.  E.g., once World War I reached stalemate on the Western Front, Germany, Britain, and France all would have been better off to reach a compromise peace rather than continue the slaughter and ultimately pave the way for decolonization, the rise of American and Soviet power, etc.  I therefore don't take future stable relations between US and China for granted, especially regarding an emotional issue like Taiwan.

Re: your last point (US as a superpower), it seems pretty obvious that if China and the US have a strategic confrontation that isn't about economics or resources, then it will be over a dispute about who controls China's neighborhood, not who controls America's neighborhood.

Since my first post, thinking about the economics of America's mounting indebtedness has prompted me to check out *Empire of Debt* from my university library.  It looks like it's a bit off the wall, but should be an interesting read.

[dark_globe]

2. Another thought:  given the fantasy of confronting China that many neoconservative writers were engaging 6-7 years ago (e.g., in journals like The National Interest), perhaps the war in Iraq has an upside:  arguably it has forced the US to be more judicious re: China. 

The illegal and criminal invasion of a sovereign nation that has resulted in the wholesale slaughter of tens of thousands of innocent people cannot possibly have an "upside."

[helpful]

2. Another thought:  given the fantasy of confronting China that many neoconservative writers were engaging 6-7 years ago (e.g., in journals like The National Interest), perhaps the war in Iraq has an upside:  arguably it has forced the US to be more judicious re: China. 

The illegal and criminal invasion of a sovereign nation that has resulted in the wholesale slaughter of tens of thousands of innocent people cannot possibly have an "upside."

Yes, I love it when the media call the Iraq invasion a "mission" like a "mission" into space!

[aardvark]

2. Another thought:  given the fantasy of confronting China that many neoconservative writers were engaging 6-7 years ago (e.g., in journals like The National Interest), perhaps the war in Iraq has an upside:  arguably it has forced the US to be more judicious re: China. 

The illegal and criminal invasion of a sovereign nation that has resulted in the wholesale slaughter of tens of thousands of innocent people cannot possibly have an "upside."

By what logic?  I'd suggest that really, really bad stuff that happens often comes with an upside.  Heck, even World War II, which ALSO began illegally (I refer to Japan's invasion of China and Germany's invasion of Poland) but killed tens of MILLIONS rather than tens of thousands of innocent people, certainly had an upside or two (not that I would recommend paying the price of the downside in order to get the upside).

I don't know to what extent a war with China-- or Iran-- has been made less likely because of being tied down in Iraq.  Which is why I had to say "perhaps."  But I don't see why, IF, the war in Iraq rendered other (possibly more destructive) wars less likely, that wouldn't count as an "upside."  I'm more comfortable with "perhaps" than "cannot possibly" in this trade-off. 

I am, of course, beginning with the premise that Wolfwowitz, Rumsfeld, Perle, and the rest, were spoiling for a fight and looking for an occasion, and I don't think it was ever very likely they were going to make it through 4 years without invading somebody. 

Saying there might be an upside does not even slightly call into question the overwhelming badness of the Iraq War.