How bad is our economic policy when we have to get good advice from the Chinese?:

“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”

If the Chinese require that we protect the dollar’s exchange rate before they purchase more Treauries, they better specify which exchange rate. Measured against gold, we have already failed this test. The politicians who just voted for the stimulus bill better hope the Chinese keep showing up at those Treasury auctions.

Update: The Chinese know what happens when you run huge budget deficits and they don’t like it one bit:

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

That is pretty harsh, but the truth hurts sometimes.

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