It’s a crisis not even Superman can fix. China is buying up U.S. debt at an alarming rate. The details of the situation are hazy at best, and the situation itself is confusing. At the end of the day, very little good comes out of it in favor of the U.S. populous. China, who’s supposedly “allied” with the U.S. economically, has the U.S. in a stranglehold. You see, the same country that helped us out of this recent recession by buying U.S. treasury bonds, now won’t stop buying them.
The major reason behind the debt is the fact that U.S. purchases more goods from China than China does from the U.S. After weighing the decision, it seems that President Obama has decided that the best course of action is to threaten to cease importation of Chinese goods. If this were to happen, then prices of goods would rise for U.S. citizens, and there’s still no guarantee this would work. For those of you who say we should apply military pressure, well, we can’t afford it.
The issue at hand cannot be dealt with through strength, nor is our economy strong enough to wait it out. The only way is to try and stop it. The fact that we are one of the largest consumers for China does play into our favor though. If we pull out of China’s economy completely, they’ll take a hit; but so will we. If that does happen, the prices of goods will rise, which will increase the cost of living also. However, to pull out of China’s economy is no small feat either. To do so would take years; years that the U.S. may not have.
Some people believe that if China starts dumping U.S. debt at an alarming rate, a trade war would ensue. Despite all the incriminating evidence provided to this point, some economists and bond experts believe that this won’t happen. Their reasoning is that the U.S. government is the safest and most flexible option out there.
According to CNN, China holds over 800 billion dollars in Treasury bonds. Now, another reason they wouldn’t sell these bonds would be because if they signaled too early, prices would drop, and the value would be degraded greatly. With this, it shows that China won’t be unloading bonds anytime soon.
Brian Battle, vice president at Performance Trust Capital Partners stated in an interview with CNN that.
“The fear with China is they may be swapping Treasuries for commodities. So even though they still own a lot of treasuries, you could wake up one morning and find that they don’t have as much.”
If there’s one common factor in this equation, it’s that both countries hope the debt will be wiped out by a rapid growth in GDP (Gross Domestic Product). The White House’s outlook does not support that hope though. According 24/7 Wall Street, the national debt is expected to raise one trillion dollars a year for the next 10 years.
Another fortunate thing for the U.S. is the fact that with China buying up all of the treasury bonds and tempering the debt, they’re keeping interest rates low, which allows U.S. banks to continue lending to consumers around the country.
With these facts put in front of me, or rather, spewed across the virtual table we call the Internet for me to find, I can’t help but notice and think: I’ve been reading reports that date back two years ago. Why is this just becoming an issue brought to light now? There are even reports from 2008 saying, “China will continue buying U.S. debt,” which makes me believe that it’s been going on even longer. I can’t answer the question, though. I suppose it’s the media just bringing what it wants to light. But, I’m getting off track.
According to the Wall Street Journal, both countries need economic growth more than anything. Well, China is achieving that, while the U.S. remains stagnant. But, that, coupled with our own flaws, allowed China to gain a sever advantage over the U.S. Only time will tell if the situation gets better.
If you’ve made it through this entire editorial without getting lost, then kudos to you. This particular topic is very hazy and vague, especially for being two or three years old now. Throughout this, we just have to have faith that our style of government is right, and it will lead us through this time of peril, much like it has for the last 234 years. Why should this one be different?