Fallible China

From atop the Stoa I can clearly see that the Chinese, quick to pick up on Western advances is now showing us that they are following us off our cliffs as well.

China has the world's largest hard currency reserves (dollars and Euros) and brags about its budding space program, 300bn high speed rail system, and booming middle class. China finds itself in a lose/lose position because of the irresponsibility of Europe and the United States.

Over the last decade, China used its vast reserves of wealth, gained through huge trade imbalances, to fund a variety of internal and external capital projects. It was also put to use purchasing the sovereign debt of Europe and the United States. Very stable, very rich collections of nation-states; their debt will be good, right? I'll bet that even the more devious among us would claim that China was using their purchases as a way of gaining very real power over the countries that are indebted to them. China has indeed been flexing its muscles of late, telling Obama and Geitner what they would like to see in terms of US policy.

I wonder if anyone in China realized that the spending and building binge that the Southern Europeans went on, funded by EU sovereign debt (from China) would eventually default on that debt. I wonder if they saw the cascading effect that such an event would have on the rest of the world?

Then Obama gets into office on the heels of a financial collapse and promises to reign in our national debt by spending more borrowed money from China (and other countries). China has been flashing the yellow light for years that they may purchase less debt from the EU and the US. In fact, they did suspend debt purchases for some time and have only recently begun buying more (when QE 2 kicked off).

Now, stories are coming out that the EU is falling apart faster then anticipated. Portugal, after denying the need for bailouts is now begging for a bailout. Spain looks increasingly weak and may join Portugal in foreclosure. Great Britain cut 25% from its spending across the board in an attempt to stave of future disaster that they see coming all too clearly. The US debt ceiling is being challenged, spending proposals in Congress are actually being debated even while our credit worthiness is being downgraded from Positive to Negative. This is due to the planned, multi year trillion dollar debts that the Obama administration has outlined for the next 10 years.

China's answer to this is to state that they will continue to prop up those nations with continued purchasing of their debt. The logic of this is that once they have stabilized their economies that they will be able to begin paying back that debt, either in cash or kind (property or mineral rights).

The results of Stimulus and Porkulus (among others) simply pushed the day of reckoning down the road. States did little to nothing to balance their budgets, instead most of that money went into the Unions and government jobs, plus banks and crony capital friends around then world.

So, the answer now is for China to inject even more money into the gap to keep them afloat. What are the odds that steps will be taken to fix the problems when all this cash drops into the laps of the very same politicians who spend and wasted it in the first place?

China, this is called throwing good money after bad. There must be a better way for you to spend your money.

With wrinkled brow, full of worry for my nation, I depart the Stoa once more today.

Live well.

--Zavost