China is NOT our pal

[tw]

Originally Posted by glatt

If our inflation gets bad enough, the debt they are holding will be worthless.

Inflation. Dollar devaluation. Economics takes revenge for money games in so many different ways.

But in every case, the Chinese are worried. They thought they were being so helpful by financing American government bonds. Financing "Mission Accomplished". Only recently has the Chinese government realized the scope of "Reagan proved that deficits don't matter". Whereas in 2003 it was considered an advantage to both parties. Now neither party wants to be in this relationship.

The bills for "Mission Accomplished" are just beginning to appear. Only the first of those bonds "because deficit don't matter" are coming due. The costs for "Mission Accomplished" will get worse. Another Deja Vue Nam. Money spent by Nixon in 1968 and 1970 resulted in the massive recession that Carter confronted in 1975 and 1979.

What will we do to pay back that money? In the 1970s, the nickel became worth a penny. Yes, others lost money because they held so much American debt. AND the American standard of living went down massively. Stagflation finally meant 20% interest rates. Today's equivalent would be credit cards with 40% interest rates.

So yes, the Chinese are not happy. China has discovered how irresponsible America was throughout the 2000s. China, like everyone else, discovered Enron accounting was massive, licentious, and perverse. And virtually unknown until the market crashed.

China will do everything possible to get out from under the dollar – which is why China and so many other nations want to remove the dollar as the international trading standard. An honest American could not blame them. As Obama said when he took office, we will be paying for this for the next ten years. "Cheney proved that deficits do matter."