A FINANCIAL MAGINOT LINE?

3/14/09

Yesterday, Chinese Premier Wen Jiabao, when asked to comment on his country’s considerable trove of U.S. treasuries and other dollar denominated assets (According to the U.S. Treasury, as of December, 2008, China held $727.4 billion of Treasuries, a 52% increase from December, 2007, a holding that during 2008 eclipsed Japan’s stash as the largest foreign holding of U.S. Treasury debt. Many experts, including the Council on Foreign Relations, consider the Treasury’s $724.7 billion estimate to be low by at least $100 billion.), uttered the following:

“We have lent a huge amount of money to the U.S., so of course we are concerned about the safety of our assets. Frankly speaking, I do have some worries.”

The first reaction of insightful observers was “Uh-oh.” The reaction of the same Wall Street sheep who got us into this mess was, paraphrasing, We have nothing to worry about; the Chinese have nowhere else to go.

Hmm…

First of all, at this precise moment, the Chinese may have “nowhere else to go” with the enormous mountain of U.S. dollars we have sent them. However, that situation may change more quickly than the flock thinks. Even now, the Chinese are investing billions upon billions of dollars in local infrastructure, part of their stimulus plan but also something that would have had to be done, regardless of China’s current cyclical condition, in order to accommodate the rapid growth and modernization of their economy. So domestic investment in somewhere else that the Chinese can go with all those dollars. The Chinese are smart and patient people; doubtless they will find other places to go. Notice, by the way, that the Europeans are hesitant, despite bullying by the Obama administration, to spend with the same reckless, carefree abandon that characterizes the approach of the ever vigilant fiscal watchdogs in the Pelosi Congress. Might Europe be vying for a little of that Chinese pot of gold?

Second, and both more important and more general, I will spare the sports, business, political, et. al. analogies, but the attitude being displayed by the somnambulists on Wall Streets, i.e., “We don’t have to do any better because our opponents are so far behind us” has never in history been a winner.

We are rapidly decimating our fiscal house and enfeebling our currency to the point of utter debilitation. The same “experts” who cheer at such irresponsibility as somehow being the answer to the crisis wrought by our irresponsibility are insouciantly telling us not to fear the obvious consequences of this insanity because we are so secure in our might fiscal fortress that no one can challenge us.

If I were holding $700 billion plus in U.S. assets, I’d be looking for somewhere else to put my money.