39H) 2/3/14
Beijing is becoming more dependent on the US and the rest of the world for its strength and prosperity.
If Beijing and we ever engaged in a moral confrontation how much would china’s holdings in American government bonds be worth if we said the paper was no longer valid?
China has not been a big buyer of our paper for several years because of its concerns about the dollars integrity.
Chinese companies get dollars by selling us products, unless china wants to sit on paper money, it will continue to use those dollars to buy stuff form us, in this case government bonds.
The fact the Chinese amassing so much in foreign currencies—$3.8 trillion at last count—means that China’s capital markets are still primitive compared with Britain’s and ours. That money is centrally controlled instead banks, insurance, venture capital funds, mutual funds, and private companies. Prior to WWl Britain ran mammoth trade surpluses. British capital for instance financed much of the industrialization of the US.
What would happen if China, to damage us decided to dump its trove of Treasury? Prices might wobble, and smart buyers would gobble up Treasury’s if they thought they were under priced. Moreover the Fed, which already has a bloated balance sheet of $4 trillion, could easily absorb what China owns in Treasury’s–$1.3 trillion.
If china did sell Treasury’s it would be paid in dollars. Then what? Would it dump the dollars for say yen or euros? Trade, not hoarding, makes for powerful economy.
The crisis in modern economies, sluggish global economy and if not corrected lead to an ever uglier political environment. The blame for the mess we are in lies with John Maynard Keynes. The head of the IMF, Christine Lagarde, recently warned that falling prices are threatening a fragile recovery? “We see rising risks of deflation, which could prove disastrous for the recovery”. Her concern echoes that of the European Central Bank head, Mario Dragfhi deflation risks and declared that the ECB will remain “accommodative”,
Money reflects what people are doing the marketplace. Money and credit are too0ols of commerce. Keynes turned that thinking on its head audaciously asserting that money and credit a re the real drivers of the economy. Control money and you control the production of products and services. But thanks to the Great Depression Keynes heresy became orthodoxy. Monetarism is a Keynesian offspring. Keynes “practical men, who believe themselves to be quite exempt form any intellectual influences are usually slaves of some defunct economist”. Pump out enough money and all will be well. What Keynes posited was the equivalent of saying that manipulating scales is the way to attack obesity. Its function is to facilitate commerce. Completely alien to toady’s fiancé ministers, central bankers and most economist s is the idea that money works best when it has a stable value. When the price of borrowing money is distorted, the financing of productive commerce is hindered. Vibrant economies not central banks, create real money and wealth is abundantly created when tax rates are low., money is stable and regulations are reasonable.

Source—steve forbes


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