158 comments on Book Review: Why Your World Is About to Get a Whole Lot Smaller
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158 comments on Book Review: Why Your World Is About to Get a Whole Lot Smaller
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Is it likely that the U.S. will impose substantial tariffs on Chinese imports while it continues to be so strongly dependent upon Chinese purchases of bonds that finance its ever-growing government debt?
What makes you so certain that China will continue purchasing bonds anyway? All signs point to their halting of net purchases of dollar-denominated assets already.
A good point. To the extent that they do continue to buy bonds, they may maintain some leverage over U.S. policy, though.
The Chinese are stockpiling hard assets. They have hugely increased iron ore imports, for instance, even though they have stockpiles of the stuff. The penny has dropped: hard assets > fiat money.
At first glance one would think the Chinese would cease buying US bonds in the case of heavy energy tariffs. But remember, China has billions (some think it's well over a trillion) invested in US debt. The minute they decide to get of the debt buying merry-go-round, the circus lights go out and down comes the final curtain. Why? Because the US dollar would collapse, and what is it the Chinese hold? It's US dollars. Lots of them...
So don't worry about China stopping it purchases of US treasuries, it's not going to happen. It's a bigger problem for them than the US. If the dollar collapses China has nothing, and the US gets out of jail free.
Strange world indeed...
China will stop subsidizing the US when they have the ability to run a closed economy.
They have been doing this to build out their infrastructure and all they have to do is start paying the workers a wage that will allow them to purchase the goods that they produce.
This is not going to continue forever.
It is all mute anyway because of the depletion of cheap energy.
The only reason that the US is still in control is because of military superiority and that is it.
"moot"
The Chinese have to keep buying US junk bonds on the hope that the US will recover and they will not lose all of their investment--over a trillion dollars, is it? This is like "lending" a jobless, flaky deadbeat more money because he says he can't pay you back your original loan unless you add to the loan. This is just something like that Nigerian scam, only it's between governments. The poor Chinese are going to lose it all.
"The poor Chinese are going to lose it all."
I don't know how credible the armageddon scenario is. Of course things don't look good, but the worst prospect for the Chinese seems to me to be a total collapse of the dollar. And I don't think that's too likely while the dollar is still the reserve currency and the exchange rate is under the control of the Chinese government.
Funding the US debt shouldn't be that much of an issue since it is all dollar-denominated, unless the economy seriously crashes. But is that really likely? Oil is going into decline, but the effect on the USA will be slowly felt and people will adapt. We've already seen how much demand can shrink when the economy has only shrunk a matter of a few percent and oil is cheap cheap cheap. When it goes up in cost (as it will do if supply is less than demand) then we will get another round of demand destruction and the price will come down again. This is the cycle we will experience ad infinitum until we work out the alternatives.
Along the way the Chinese will be able to slowly unwind their position, and I'm sure they expect by then that their own economy will be getting into gear and they won't be quite so dependant on export markets.
I'm not a climate or peak oil sceptic, but I'm also not a doomer. I don't think that things are going to be fun, but I also do think that we will get through it, one way or another.