They didn’t say it outright, but China has indicated that they’re worried about the massive debt buildup and the out of sight spending by the United States. Couple that with the collapse of banks holding bad debt, and any investor would be considering the same thing.
The problem with China is that they hold 1 trillions dollars of government backed U.S. securities. If they should decide to cash those out, even a portion of it-the U.S. collapses like an accordion. Not only will there be no more money coming from China, what money is already here will be going out the door. The fed will have to print massive amounts of money and inflation will go through the roof. In an age of instant gratification, how do you make an instant third world country? Read the recipe above. The only good news (if you can call it that), is that China’s economy is dependent to a great extent on the U.S. We’ve sent enough jobs over there to actually make them an economic powerhouse. They would be essentially looking at destroying their bread basket. The point at where they may not need the U.S. anymore is approaching though.
I’ve talked about the danger of living off Chinese borrowing, and now the time may be close to paying for it. There may be a silver lining in this all (although I wouldn’t count on it): The corrupt politicians and Wall Street thugs that fed this beast for so long may actually see the writing on the wall and decide that they may actually have to play it straight, at least for a while, while the economy recovers. I say I wouldn’t count on it, because earmark laden bills and financial institutions that refuse to say what they’re doing with our money still abound. How many Bernie Madoff’s are still out there?
We’re miles from shore, and all we have is this stinking trillion dollar life preserver. I think I see some Chinese sharks coming…