- Early this morning China let the idiots in Washington,
and on Wall Street, know that it has them by the short hairs. Two senior
spokesmen for the Chinese government observed that China's considerable
holdings of US dollars and Treasury bonds "contributes a great deal
to maintaining the position of the dollar as a reserve currency."
-
- Should the US proceed with sanctions intended to cause
the Chinese currency to appreciate, "the Chinese central bank will
be forced to sell dollars, which might lead to a mass depreciation of the
dollar."
-
- If Western financial markets are sufficiently intelligent
to comprehend the message, US interest rates will rise regardless of any
further action by China. At this point, China does not need to sell a single
bond. In an instant, China has made it clear that US interest rates depend
on China, not on the Federal Reserve.
-
- The precarious position of the US dollar as reserve currency
has been thoroughly ignored and denied. The delusion that the US is "the
world's sole superpower," whose currency is desirable regardless of
its excess supply, reflects American hubris, not reality. This hubris is
so extreme that only 6 weeks ago McKinsey Global Institute published a
study that concluded that even a doubling of the US current account deficit
to $1.6 trillion would pose no problem.
-
- Strategic thinkers, if any remain who have not been purged
by neocons, will quickly conclude that China's power over the value of
the dollar and US interest rates also gives China power over US foreign
policy. The US was able to attack Afghanistan and Iraq only because China
provided the largest part of the financing for Bush's wars.
-
- If China ceased to buy US Treasuries, Bush's wars would
end. The savings rate of US consumers is essentially zero, and several
million are afflicted with mortgages that they cannot afford. With Bush's
budget in deficit and with no room in the US consumer's budget for a tax
increase, Bush's wars can only be financed by foreigners.
-
- No country on earth, except for Israel, supports the
Bush regimes' desire to attack Iran. It is China's decision whether it
calls in the US ambassador, and delivers the message that there will be
no attack on Iran or further war unless the US is prepared to buy back
$900 billion in US Treasury bonds and other dollar assets.
-
- The US, of course, has no foreign reserves with which
to make the purchase. The impact of such a large sale on US interest rates
would wreck the US economy and effectively end Bush's war-making capability.
Moreover, other governments would likely follow the Chinese lead, as the
main support for the US dollar has been China's willingness to accumulate
them. If the largest holder dumped the dollar, other countries would dump
dollars, too.
-
- The value and purchasing power of the US dollar would
fall. When hard-pressed Americans went to Wal-Mart to make their purchases,
the new prices would make them think they had wandered into Nieman Marcus.
Americans would not be able to maintain their current living standard.
-
- Simultaneously, Americans would be hit either with tax
increases in order to close a budget deficit that foreigners will no longer
finance or with large cuts in income security programs. The only other
source of budgetary finance would be for the government to print money
to pay its bills. In this event, Americans would experience inflation in
addition to higher prices from dollar devaluation.
-
- This is a grim outlook. We got in this position because
our leaders are ignorant fools. So are our economists, many of whom are
paid shills for some interest group. So are our corporate leaders whose
greed gave China power over the US by offshoring the US production of goods
and services to China. It was the corporate fat cats who turned US Gross
Domestic Product into Chinese imports, and it was the "free trade,
free market economists" who egged it on.
-
- How did a people as stupid as Americans get so full of
hubris?
-
- Paul Craig Roberts was Assistant Secretary of the Treasury
in the Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review. He is
coauthor of The Tyranny of Good Intentions.He can be reached at: paulcraigroberts@yahoo.com
|
