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The Three Ways China May Deal With Growing U.S. Debt

By William Patalon III
And Jason Simpkins
Money Morning Editors

Although there's a veritable laundry list of obstacles that could blunt the U.S. government's ongoing economic turnaround efforts, its single-biggest challenge may come from its single-biggest creditor – China.

When China announced a new array of stimulus measures earlier this month, this very important plan was overshadowed by China Premier Wen Jiabao's concerns about the United States' quickly growing debt load.

"We have lent a huge amount of money to the United States," Premier Wen said. "Of course we are concerned about the safety of our assets. To be honest, I am definitely a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China's assets."

China has cause to be concerned: As of December, the most recent figures available, China held $727.4 billion in Treasuries – about 26% more than the $578 billion in U.S. government securities the Asian giant held at the end of 2007. More than half of China's nearly $2 trillion in foreign currency reserves are tied up in U.S. Treasuries and notes issued by other affiliated agencies of the U.S. government – including beleaguered mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).

However, the value of U.S. Treasuries has dropped steadily since the government began selling record amounts of debt to finance its economic stimulus packages. Investors have lost an average of 2.7% in 2009, according to Merrill Lynch & Co. Inc.'s U.S. Treasury Master Index.

China's leaders "are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher," JP Morgan & Co. (JPM) analyst Frank Gong told The Associated Press. "Inside China there has been a lot of debate about whether they should continue to buy Treasuries."

And as the U.S. debt soars as the government works to halt the worst financial crisis since the Great Depression, China's concerns about this country's growing deficits – and its creditworthiness – are escalating in kind.

Depending upon how it did so, were China to stop buying U.S. debt – or even worse, to start dumping it – the economic fallout could be widespread, and perhaps even catastrophic:

  • The U.S. dollar would drop 15%-20%.
  • U.S. stocks would get hammered.
  • Inflation would spike and interest rates on Treasuries would jump into the 8% range.
  • And the economy would end up flat on its back – where it would stay, with no rebound on the horizon.

Detailing the Deficit

During the first five months of the 2009 fiscal year, which began Oct.1, the U.S. budget deficit hit a record $764.5 billion. Last month, President Obama outlined a $3.94 trillion budget plan that would take the deficit to $1.75 trillion by the time the fiscal year ends Sept. 30. The plan then calls for a $1.17 trillion deficit for fiscal 2010.

As currently projected, the U.S. budget deficit is forecast to run at about 12% of gross domestic product (GDP) – even worse than the perennially anemic Japan, where the deficit is running at 11%. And the debt picture is certain to get worse.

The Treasury Department has the government's printing presses running overtime just to finance the $787 billion stimulus passed by Congress earlier this year. And in order to pay for all the stimulus, bailout and fix-it plans that are being put in place to arrest the U.S. economic decline, the U.S. government is assuming a murderous amount of debt: Over the next decade, the Congressional Budget Office projects that the White House budget will run $9.3 trillion in deficits.

That's $2.3 trillion more than the Obama administration had forecast. But even the CBO projection could prove way too low: It assumes that the U.S. economy – after declining 1.5% this year – will turn around an advance at a racy 4.1% clip in both 2010 and 2011, a forecast that seems far too rosy, given the depths that the U.S. economy appears to have reached.

And that brings us to China.

Enter the (Red) Dragon

During the past several years, government-operated "sovereign-wealth funds" (SWFs) from virtually every major economic powerhouse around the world had been on a global shopping spree, buying up assets and bidding up prices as they did so.

China was no exception.

So when worldwide financial-asset prices began to slide – and then to nosedive – China abandoned many of its riskier holdings, choosing to boost its stockpile of U.S. Treasury securities. That underscores one marketplace truism: Despite Premier Wen's reservations, the market for U.S. debt is the only market large enough, liquid enough, and stable enough to accommodate China's large-scale investments.

That's forced China to engage in a kind of global investor activism – although, so far, most of that activism has been aimed at one country: The United States.

About one-fifth of China's currency reserves were tied up in Fannie and Freddie debt last fall when the two mortgage firms were placed under government conservatorship, The Washington Post reported.

In fact, as Money Morning detailed back in September as part of its ongoing investigation of the bailout of the U.S. banking system, that U.S. government decision to take control of Fannie and Freddie was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds.

China clearly made its risk concerns known at that time, adding to the sense of urgency U.S. officials felt to make a move. Today, as U.S. debt continues to mount at an obscene rate, financial and economic risks also escalate. This could lead to a spike in inflation and interest rates – a double-whammy that could cause any recovery that's under way to sputter and stall. That duo of higher inflation and interest rates could also hammer bond values, including the Treasuries held in such large quantities by China. So it's no wonder the risk concerns China articulated back at the time of the Fannie and Freddie takeovers go double or triple now.

Indeed, when Premier Wen unveiled the spending measures earlier this month, he made the point of saying that China should seek to "fend off risks" by further diversifying its reserves.

"We have already adopted a guiding management policy of diversifying our foreign exchange reserves, and at present our foreign exchange reserves are safe overall," Wen said. "Our first principle in managing foreign currency is averting risk. We have always adhered to the principles of foreign currency security, liquidity and maintaining value, and implemented a strategy of diversification."

When it comes to U.S. government debt, that strategy will take one of three forms, and will have the following potential effects:

1. Quietly threatening to stop purchasing (or even threatening to "dump") U.S. Treasuries, a form of "back-channel" communications that can generate results (just look at how China forced the U.S. government to place Fannie and Freddie in conservatorship). Because this is back channel, it stays out of the marketplace, so long as the U.S. government finds some ways to appease Chinese investors by somehow reducing risk.

2. Quietly slowing or stopping its purchases of U.S. government debt. If China does this effectively and systematically, the fact that it's cutting back on purchases doesn't surface until the plan is executed. If China is able to pull this off – and it faces long odds to do so – the fact that it's cutting back on U.S. debt doesn't roil the markets too badly, especially if it doesn't leak out until after the fact.

3. Publicly dumping U.S. debt. Self-explanatory in nature – and also the most unlikely, if it wants to maintain its "friendly" status with the United States – this is the worst-case scenario, and is the one that ends up with the dollar and the stock market getting stomped. If China chooses this route, it's also essentially cutting off its nose to spite its face. The reason: By publicly dumping U.S. debt, the Treasury market will also take a beating – meaning China's remaining U.S. debt holdings would take a haircut of 20% to 30%.

The Marketplace Realities

International demand for long-term U.S. financial assets actually fell in January, reflecting China's smallest net purchase since May, Bloomberg reported.

International investors sold a net $8.4 billion in U.S. corporate debt in January, the report showed. Net foreign purchases of Treasury notes and bonds were a net $10.7 billion in for the month, after purchases of $15 billion a month earlier.

Few analysts believe China will abandon its Treasury holdings altogether, as that would hammer the dollar, hurt the value of its debt holdings and ruin its political relationship with the United States.

Besides, it's becoming increasingly clear that Beijing wants a voice in Washington.

Yu Yongding, a former advisor to the Bank of China said last month that China should seek guarantees from the U.S. government that its holdings won't be diminished by "reckless policies."

Premier Wen echoed that request last week when he called on the United States to "honor its promises and guarantee the safety of China's assets."

"I think what they're trying to say right now is, 'Don't take any steps that would impair our ability to access your market,'" Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, told The Post. "The Chinese are starting to flex their muscles, they are becoming more powerful commercially and economically, and they want us to know it."

The very possibility that China and other foreign countries would stop buying U.S. bonds already was enough to prompt the U.S. government to take control of foundering mortgage giants Fannie Mae and Freddie Mac

News and Related Story Links:

  • The Associated Press:
    China 'worried' about US Treasury holdings
  • Tampa Bay Online:
    World Leaders Wary Of U.S. Finance Plan

Join the conversation. Click here to jump to comments…

  1. nizar mecklai | March 25, 2009

    There is merit in China's suggestion that time has come to remove the US Dollar as a Reserve Currency and replace it with SDRs managed by the World Bank and IMF. This would free the USA t do whatever it likes with its own currency which should float establish it operating rate with the rest of the World and more especially with GOLD.
    This would also FREE THE WORLD from being HELD TO RANSOM by the US Government's "interpretation" of the rest of the World's interpretation of DEMOCRACY.

  2. A Treutler | March 25, 2009

    It is good to read a thoughtful analysis away from Talking Heads with their unanswered, silly sound bites left out there like dog droppings.

  3. KCB Gupta, India | March 25, 2009

    China cannot do anything as it is caught with catch 22 situation and there are no alternative destinations to park its funds except perhaps promising Indian market. But it would not do anything like that due to its animosity to its neighbor and the possibility of India becoming a strong competitor. India with that kind of money can improve its infrastructure and give a boost to its economy.

  4. KCB Gupta, India | March 25, 2009

    Pl confirm by mail once it is accepted

  5. 2bwise | March 25, 2009

    It is the most stupidest idea that any national gov't would drive itself into debtor status. National debts don't benefit anybody. What are people going to do if there was no U.S. Gov't to buy debt from? Every National Gov't needs to be a debt-free Gov't.

  6. Ed C | March 25, 2009

    Just a general thought on the current situation.
    I have followed Money Morning for some time, and all the information seems very well researched, and all the writers are very likely to be right about their predictions of the consequences of Obama's policies.
    BUT, WHAT IF. What if Obama understands all of this, and is just thinking one step ahead of us all?
    Should everything happen the way it looks like its going to happen, what would be the next step? After the "bombshell" goes off, and we hit rock bottom(in terms of the dollar), where would we rebuild?
    Perhaps Obama is intentionally accelerating the inflation of the US dollar in order to demolish the current system in place, in order to implement a new one.
    Just a thought, I would be glad to hear other theories and opinions!

  7. Jeff Roberts | March 25, 2009

    It's interesting that whenever the mainstream news tells us that it's the taxpayers that will ultimately pay for these bailouts, but that is not true. It's anyone that holds U.S. currency. This article is a reminder of that fact.
    What this article fails to mention is the likelihood or at least the possibility of the Euro replacing the Dollar as the world's reserve currency and the currency for trading oil.
    As far as the ultimate recovery of the US economy, I think that we need to re-establish a manufacturing base, so that we can reverse the trade imbalance. Today, virtually noone requires our goods for their own survival. What is our biggest export? Military goods? I would like to have a hard look at what efforts our government has done to encourage the drive for offshoring work abroad – especially tax incentives.
    The U.S. needs to do what Japan did, and that's increase our savings rate and have a national government that protects and encourages a strong manufacturing base. For many years, Japan had a lot to learn from the U.S., but now we need to learn from them.

  8. Allan | March 25, 2009

    Re: the last comment from ED, I think your head is in the clouds like a lot of Obama supporters. The man has never ran anything in his life, albeit he ran a good campaign…but did he really run that!! He is taking presidency 101 and learning on the job and while so doing he is going to bankrupt the country as he is way overspending. He calls it investing, it should be called spending. The next time I go to Vegas and "spend" a bundle I think I'll tell my kids and grandkids that I am investing in Las vegas!!

  9. Craig | March 25, 2009

    Its official. The US is China's bitch!

    The US is going to have to bend over and take it long and hard from now on. The US era of dominance is speeding to an end faster than anyone thought. Just like the stockmarket the rise was long but the collapse is swift.

    China has "the gold" and makes the rules ever more stridently from now on. China has already started screaming JUMP! and the US is responding with HOW HIGH?

  10. George | March 25, 2009

    Fellow Readers…let's faceit !!…China is buying the United States …!! Americans have lived on china's credit for over a decade now…time has come to pay the bill

  11. Ed C | March 25, 2009

    Re: comment from Allan.
    Lol, you may be right, the man is a very convincing speaker. But looking at it from a strategic standpoint and ignoring what exactly he has or has not done in the past, because, lets be honest, even after Bush had one term in office, he was still not competent in running the country.
    How would you explain to Joe the plumber how the monetary system REALLY works, and that all his savings are going to be wiped out in order to rebuild something solid and honest? I think the best thing to call it would be an investment.
    You are right, he is going to bankrupt the country, on purpose!
    Its only a matter of time, even if Obama was to NOT go ahead with his decisions, until inflation will begin to accumulate faster and faster and the dollar would become worthless maybe 2 years from now, instead of 9 months from now.

  12. John PAIN Sr | March 25, 2009

    We need a new honest monetary sytem and commercial banks should practice banking only with few exceptions .

  13. Peter | March 25, 2009

    When I grew up there were very few millionaires (considered to be the very rich). Now there are millions of millionaires, made millionaires by about sixty years of government profligacy and inflation – sometimes slow, sometimes rapid. Millions of old people have been gradually inflated out of debt and into a tolerably comfortable retirement by government profligacy. What Obama and team are doing is nothing new. His plan is to inflate all the toxic debt and underwater mortgage debt into oblivion. The only danger is that this time around the result could be (some like Schiff are saying "will be") hyperinflation, where the consequences for the country will be abject fear, widespread poverty, social unrest, and possibly world war. I happen to think that, one more time again, we will muddle through. But we had better get religion fast – both figuratively and literally.

  14. David | March 25, 2009

    Thank you for the considered analysis.
    One option for China not discussed, (one that seems likely or already occuring) is for them to use US paper to purchase key resources from third parties. This would pass off US dollar risk and acquire hard assets at current favorable prices. Oil, metals, agricultural land and fishing consessions – things they need for future growth. Would they be able to do this without disturbing the market? Any comments?

  15. RogerL | March 25, 2009

    There is a 4th way… Some of China's recent purchases of Australian mining companies (such as Oz Minerals) are structured so that the long-term debt China has agreed to take on will be paid in US dollars. Why would China prefer to pay long-term debt in currently "strong" US dollars instead of the recently plunging Australian dollar? That's quite a nice hedging strategy when you think about it…and the Chinese have thought about it.

    The problem, of course, is that they need to hedge not just a few billion dollars but hundreds of billions. But if anyone has the patience to do that over a number of years and countries, it is the Chinese government.

  16. Sky Stirling | March 26, 2009

    I believe that China will do nothing to destroy the Socialist States of America relationship. Gold based currency is another matter, and the destruction of the Dollar is certain. If not that, then secession of the states and the implementation of each territories own currency. Either way I agree it's time to get "Right With God" and forgive our Debtors and take up arms with our Creditors. In the meantime don't forget to store up your Gold and Silver, Guns, Food & Fuel, and realize that your new change government will be taking all the amunition off the table.

  17. Sky Stirling | March 26, 2009

    If moderation is needed please correct the spelling of ammunition while your at it, thanks, Sky.

  18. Finny Firebird | March 26, 2009

    Very thorough and thoughtful provoking article. The U.S. and it's citizens need to understand these economic issues and then take the actions necessary to grow our economy and pay down our presonal and collective (government) debts, as well balance our trade deficit (this will require reducing spending as well as rebuilding our capability to make and export products). To achieve these imperatives will require many things including but not limited to better education and training, courageous and insightful leadership in government and business, supportive tax and economic development policies, time and sacrifice. Unfortunately it takes a prolonged and painful crisis to bring about necessary change…such is human motivation. As Winston Churchill said, Americans always do the right thing…after fully exhausting all other options.

  19. Krishna | March 26, 2009

    It is quite a revealing article on the potential future course of financial relationship between US and China and among all other countries due to economically disturbing fall-outs as a result. The excess US consumerism and wasting habits have both contributed for economic growth and decline outside the US. This prodigal habit proved bad enough at this time of high national debts. The Americans should practice not to pile up the debts but to apply speedier austerity towards reducing budget and trade deficits and debts to save the image of the US dollar as the world reserve currency from erosion. There is no currency that can replace US dollar as reserve currency at the moment, but the American recklessness have prompted the countries to resort to "basket" modality, meaning the eroding trusts on the US dollar.

  20. In Debt We Trust | March 26, 2009

    Has China tried hedging its Treasury holdings by shorting the dollar in the derivatives market?

  21. Dumas | March 26, 2009

    The bottom line is that the U.S. cannot possibly pay off its creditors(national debt).It has three courses of action.The first is to default and a third world banana republic.The second is that it can enslave its curent and future generations of Americans by trying to pay this debt.Lastly it can start a world war.Obama has really taken on an impossible task.He is relatively an honest person who really cares about America and wants to do right,but he is screwed by by what he has inherited not just by Bush but forty years of deficit spending by America. Its going to get interesting.

  22. Gary Wardell | March 27, 2009

    "The U.S. dollar would drop 15%-20%.
    U.S. stocks would get hammered.
    Inflation would spike and interest rates on Treasuries would jump into the 8% range.
    And the economy would end up flat on its back – where it would stay, with no rebound on the horizon. "

    US imports would drop off; US exports would soar. The US would soon be at FULL EMPLOYMENT!

  23. Dusty | March 29, 2009

    Mention of guns and ammunition brings shivers. I enjoy target shooting and like guns as small pretty machines and tools. The problem is that the vast majority of Americans cannot really be fooled for very long. You know: "You can fool some of the people. . . ."

    It is estimated that there are enough guns in America to arm every one of us, except for a few of the newborns. Since it became apparent who the current President would be, in the fall of 2008, sales of guns and ammunition have been sufficient to empty the shelves of the gun shops and keep them empty. Emphasis in this buying pressure is on, but not limited to, military style guns and military (NATO) calibers of ammunition.

    America is preparing for self-protection after the general complete collapse of our Nation. America is also quietly preparing to carry out an armed revolution, if necessary, to install a sane and responsible government at state and national level that will act in accordance with the documents created for the fledgling "United States" in the late 1700's and early 1800's.

    The horrors of such a conflagration are unimaginable. Food alone requires supply lines that snake back and forth from border to border and sea to sea. Growing food locally is a joke in much of the nation. Water and fertilizer are a part of those vast complicated supply lines. It only takes two weeks to starve: even if the land will support gardens and chickens the local infrastructure for food from that will require months and probably years. One of the realities is that the foods we take for granted on the grocery store shelves are from global sources, almost entirely so in some seasons. Clean water is even more a technological marvel that requires supplies and machine parts from everywhere. What happens when the electric power lines are destroyed? Or the pumping stations for natural gas?

    I can only hope that the current "Powers That Be" can get their act together before cataclysmic chaos ensues. I am too old for all of this and I do not wish for my tiny grandchildren to have to experience and endure any of it.

  24. Jay | March 29, 2009

    The chickens came home to roost. The American empire is kaput, and Obama’s role is to give the USA its final blow…

  25. ROBERT | March 29, 2009

    the one who destroyed the american manufacturing base, built china into the ever growing all powerful beast its becoming, destroyed the american dream and middle class, made our once most properous land a third world debtor nation is one george w bush. We the people have lost homes,jobs,had our 401ks and retirement we paid into for 30 years with 7 day work weeks and overtime galore and steadily lost pace with the standard of living. I say put moron george on trial for treason for crimes against America, its people and our beloved land.

  26. Pete Hunter | March 29, 2009

    In my 74 years on the planet I have watched many four star generals come and go.But I have never watched one as intelligent and articulate as General Petraeus.His good sense and moral strength exude from his compelling presence. Let's make sure to keep him in our senior leadership.We might need him for our biggest job in a few years.

  27. Chuck | March 29, 2009

    In responce to robert , I was not thrilled with Bush, but in all fairness it was one Bill Clinton who was gung ho with most favored trading status for red china. He also thought nafta was the best thing since sliced bread.
    I thought the whole idea of loosing our manufacturing base was just plain crazy. It was the engine that drove our economy. As one who worked in that industry(note pastense)
    I feel betrayed and believe all who gave away our economy should be tried for treason.

  28. ken hodge | March 29, 2009

    Hey robert, you're capital san francisco? Yeah, I too
    believe W did alot of things wrong and maybe should
    be tried for treason and then hanged..ALONG WITH
    just about all the democrats… so, why do folks of
    your ilk keep on with that antique rhetoric about how
    much you hate and blame W for damn everything? Get
    some homework done regarding US and China relations
    going back at least as far as 1970. And yes, I believe
    Obama is a post turtle here to betray America by
    giving the final blow. It seems apropos that he do it
    from the same office and desk from where at least one
    other famous last blow was given… so let's get over it
    and unite ourselves under the original constitution
    with a third party and return to morality and freedom.
    If we have to exicute alot of bastard treasonous
    politicians then it's probably way overdue.

  29. marliisa | March 29, 2009

    Two months into his presidency and Obama is in the eyes of republicans the one who created this mess. The level of denial of the consequencies of 8 eight years of republican rule is laughable if it wasn't so tragic for the nation. Clear recession started in 2007 when Bush and Co were still and through 2008 assuring the country about the strenght of the economy – reminds me of Ken Lay and Enron.
    Bush took the presidency with budget surplus and ended with $1.3Trillion deficit. How can anybody with clear mind claim that republicans know how to run this country?

  30. chris erickson | March 29, 2009

    the simple way to fix this was stated last year ; drop all instrest rates to 4% fixed ; give the companied that produce
    here tax credits , tax the ones who produce out of the country & out source the jobs … this mess was created by
    letting companies ship jobs overseas & dropping all tariffs on imports which as somebody said thanks to bush & bush pluss
    a republican congress , which only cared about the bottom line for big buiss & banks /wall street .. russia ; owes a small
    fortune in defaulted loans so do most of the countries in the world including china which if you dig you will find out were
    financed by the united states , so call all past loans & see if
    they can reapy with the compund intrest….

  31. chris erickson | March 29, 2009

    P?S I forgot somthing ; if all opf the compaines pulled out of chine the manufacturing bases & no one one purchased products made in china & the world switched over to renewable energy ? what would russia & chine do ??/

  32. 442g4 | March 29, 2009

    Hey Robert- Though not a Bush supporter, I cannot allow your comments to go unchecked. Destroyed the American manufacturing base: Clinton and Congress with NAFTA. Did Bush oversee American corporations' exporting millions of American jobs overseas that Obama himself said "were not coming back," last week? Republicans such as Pat Buchanan were for American manufactuing protectionist policies throughout the 90's, but afterall, "it's the economy, stupid." Isn't that interesting? Ultimately the Republican protectionist policies of Pat Buchanan would have accomplished more to save union jobs- WHAT AN IRONY! Robert, was Obama correct in his statement last week wherein he also implied that the jobs that left were not jobs Americans were interested in having anyway? I'm just not buying that and I don't think unemployed union workers in Detroit feel that way either.

    Was Bush in charge of the tax and spend "third world debtor nation" Congresses of the 60s, 70s, 80s and 90s? I assume Dubya made his father cave to Tip O'Neill after the elder Bush declared, "Read my lips…" Anyway, I digress. You probably wouldn't know who Tip O'Neill is without Googleing his name to construct your surely furious reply.

    Don't demonize one man or one side of the aisle- If you try and fry Bush, you need to do the same to all the others. Do you want to live in the "mob rules" mentality of the French Revolution? I sure as hell do not. Go get an education and stop speaking out of ignorance and hate. One thing that makes your America the greatest nation on God's earth is that we don't kill our former leaders through coups, bloodshed or kangaroo courts trying them for being morons. Nor do we silence the opinions of the uneducated morons when they get their turn at democracy.

    America is NOT suffering through this recession because of George W. Bush, the CEOs at AIG and commercial banks or their lucrative bonuses, but rather through many seasons of the electorate not holding this twisted two party system in check for its corruption and mismanagement. If it's all about the economy, stupid, well who's checking each candidate's resumé for competence in executing the leadership we need want and deserve? Who are the electorate, Robert? How can we bring our leadership to accountability under the great Constitutional government that was designed for serving its people? Without killing, violence, hatred or demonizing, what can Americans (YOU) do to make it better?

    America does not need hearings, trials, exposés on news magazines or more (middle?) finger pointing. America needs truth, responsibility, accountability, hard work and dilligence. The light of truth roots out corruption. Responsibility and accountability refrain the cause and growth of corruption. Hard work and dilligence add real value to our concerns and efforts. If foreign governments perceived more real value in good old American hard work and dilligence, the Chinese wouldn't be complaining, they would be realizing an honest rate of return in their investment in the efforts of our people.

    How can Mr. Wardell's comments above regarding soaring American exports come to fruition through the implied Obama scheme of deflating the value of our dollar without destroying our relations with our trading partners? What can American engineers be creating to end American dependence on these foreign governments or their products? How can American politicians and corporations work together to see these things to meaningful gain for everyone? Socialism or Communism is NOT the answer. Holding them accountable IS.

    Anyone remember the Soviet economy when Mr. Gorbachev was asked to "tear down this Wall?" Did the Russians create more debt by aggressive spending and export their jobs? NO! Stop and think about accountability: Is it possible that Ronald Reagan sent a message to the Soviets that the U.S.A. would be on board to HELP them through a more open, transparent, more FREE economy and government? True: help ultimately came from here, but freedom to produce and have a more abundant life sparked Russian entrepreneurs which triggered American investment helping to propel their economic growth.

    There is something to accountable American leadership that stimulates real production and economic growth. We cannot have that without greater personal responsibility from more Americans- Not just those in charge, but for all of us. Stop exporting jobs and get back to work- restore American ideals to the top of the food chain through leadership, not shell games or political pandering. Robert, if our leadership on both sides of the aisle cares more about the next election cycle and what to spend to buy votes than the future of our nation, without killing, violence, hatred or demonizing, what can Americans (YOU) do to make it better? Is an ill-informed opinion filled with demands for someone's head helping to solve the problem, Robert? Stop sniping and give us solutions. Electorate, hold your leaders accountable. Stockholders, don't just sign your proxy. Don't wait for "the men who hold high places to be the ones to start…"

  33. rich | March 30, 2009

    Please change this green font! It's really difficult to read!

  34. WayneRight | March 30, 2009

    Robert, to think that the economic woes of the US started and ended with GW Bush are short sighted. US has been deficit spending for decades under administrations and congresses headed by both parties. Every administration change blames some of their difficulty on the outgoing party. The present losses are terrific and the tragedy is great especially for those thinking that they were going to enter "retirement". Roosevelts SS admin created the biggest ponzi scheme in world history, one which the particpants cannot opt-out, and has ultimately been financed in part by foreign creditors. It is a house of cards, with numerous ill-placed supports, anyone of which destablizes. Witch hunting the previous administration sets a bad precedent like adding to the debt. In the future then, what person would run for office unless they had and iron-clad ability from favors, fixers or corruption to resist such persecution? Turn your zeal to building what's left. Us younger folks realized 10 years ago that there IS no retirement like others knew and probably I will work as long as I am physically able, save while I can, and pray for the best after that.

  35. Gary Wardell | April 2, 2009

    Please delete post 37. It got away from me.

    "Ultimately the Republican protectionist policies of Pat Buchanan would have accomplished more to save union jobs- WHAT AN IRONY! "

    I voted for Pat Buchanan. I have never voted for the election winner for president.

    This is what I wanted to post thank you.

  36. Jimmy CS Yeo | April 7, 2009

    there are no 3 ways for China to respond.
    The first, to threaten carefully, has taken place resulting the US government taking over fenny and freddie, asthe writer said so.
    the second, the quietly withdraw, is impractical in that the whole world is awaiting and watching for some one to make a first move, with China being the prime target.
    and Third, to dump the market? well China cannot do that since they will suffer the most.
    that lead us to the 4th and most likely scenario: that the market will crash under its own weight with China taking some belated action resulting in its own suffering and adding salt to American's wound.
    And why has this got to happen? Because the American was spending more than its earnings, way too much for too long which resulted in this current credit crisis.
    And what can the American do about this? by #spending less than its earning. you stupid.
    The problem is this goes against the conventional wisdom of CONSUMERISM, which every body is working hard to revive.
    However, since #cannot be wrong, Consumerism has to be!
    But nobody has yet to be able to figure out why?

  37. Jimmy CS Yeo | April 8, 2009

    the writer said" the economic fallout could be widespread, and perhaps even catastrophic:•The U.S. dollar would drop 15%-20%."
    Either the writer is naive, has never seen a market crash, or not wanting to cause alarm to the public.
    Although the amount vary according to the size of the nations, but most nations holdings are heavily weighted in USD.
    when it falls, all would have to get out quick and fast, therefore it is called a crash. When that happens, it will be backed by some major and foundamental changes in the monetary system, perhaps a new world currency, making it a road of no return.
    the dollar would be lucky to retain 15-20% of its current value.
    and scholars would have no problem validating it at that time.

  38. Bigger | April 20, 2009

    What if USA defaults on its debt?
    As it did at the beginning of the 70ies dropping the gold currency backing?
    I think this will a better solution and that's why Chinese are sterilising their risk by converting their obligations in dollars.

    After all, USA can fastly create a new USD, gold backed, and start over again.


  1. […] Now that the Fed has recklessly shown its hand, the mad dash to get out of U.S. Treasuries and dollars should not be far off. The more the Fed prints to buy bonds the less the dollar is worth. Holders of our debt (read China and Japan) understand this dynamic. We must expect that they will not only refuse to buy new bonds, but they will look to unload those bonds they already ow…. […]

  2. […] Therefore, the solution is for government spending to pick up the slack. However, if Americans are too broke to spend, then how can our government spend for us? The only money they have is taken from us through taxation. To postpone immediate tax hikes (adding interest for good measure) Washington plans to borrow more from abroad. However, if our foreign creditors refuse to pony up, much of the money will simply be printed instead. […]

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