Obama: Our Debt Is Safe
Strange days as the President of the United States needs to reassure China that we’re not defaulting on our debt:
“There’s a reason why even in the midst of this economic crisis, you’ve seen actual increases in investment flows here into the United States,” Mr. Obama told reporters. “I think it’s a recognition that the stability not only of our economic system but our political system is extraordinary.”
He added, “Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States.”
I don’t know if this was the intention, but the highlighted portion serves as a reminder, I think, that the Chinese leadership almost certainly has a bigger problem on their hands than the performance of their investment portfolio. It’s an authoritarian system that even before the crisis was suffering from a fair amount of protests and political unrest. Conventional wisdom twelve months ago was that the regime’s stability was based on its success in delivering economic growth. And now it seems they may not be able to deliver much in the way of economic growth. And that’s not just an economic problem, it’s a political one.
39 Responses to “Obama: Our Debt Is Safe”
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March 15th, 2009 at 10:33 am
Poor silly Matt. Endlessly believing his own neoconist “America is the Greatest!!!” propaganda.
On the other hand, this could all just be regarded as a brilliant American strategy for bringing down the last Communist Regime on earth:
(1) Borrow trillions of dollars from the Communists.
then (2) Default on your debt.
March 15th, 2009 at 10:33 am
The US may, unlike Iceland, be too big to fail but don’t think for one moment that the Chinese, and every other nation on earth, don’t know who is to blame for the mess.
Besides the Chinese are as unlikely to string up their leaders as we are ours.
And we have even greater cause for plaint.
March 15th, 2009 at 10:36 am
Beyond straight economics, the “China is over” hypothesis seems to miss important cultural and political realities. Its unspoken premise is that average Chinese people just barely tolerate the social bargain the government now offers—limited freedom, potentially unlimited wealth. So if the regime ever falls short on its material promises, the deal will be off and people will rebel.
This does not square with what I have seen.
http://www.theatlantic.com/doc/print/200904/chinese-innovation
March 15th, 2009 at 10:36 am
China’s fate was sealed when they embarked on a policy that ensured large numbers of sexually frustrated, unmarried men. Now they are going to be sexually frustrated, unmarried men without jobs.
They better pick some little country to kick the shit out of fast or they are going down.
March 15th, 2009 at 10:44 am
Matt,
As a foreign policy specialist, can I tell you that you are very wrong about the intent or nature of that quote – I read and enjoy your blog but your youth comes through often – or you are being ideologically myopic in this case. That quote is has nothing to do with China’s govt. The risk of any govt. securities is partially a function of a govt.’s stability and the president is reminding china that the U.S. are better bet in terms of political stability during crisis than many other foreign investment options like Eastern Europe, etc.
March 15th, 2009 at 10:46 am
“It’s an authoritarian system that even before the crisis was suffering from a fair amount of protests and political unrest.”
Somehow I have a feeling they know how to deal with a “fair amount of protests and political unrest”. Anyone been to Tibet recent?
March 15th, 2009 at 10:48 am
People who think China’s political economy is going to collapse if they have a couple of quarters of “bad” growth (which in a Chinese context reads as somewhere around 3% annual) are engaged in wishful thinking. The idea seems to be that China, like Russia during WW1, will fall to revolution unless it sustains 8% growth. The big, obvious issue with that is that even in Russia’s case, people took a long while to get fed up and built off of centuries of pain; nothing comparable is happening in China.
March 15th, 2009 at 10:58 am
And what makes this (and poor Matt!) such a total joke is the actual “realities on the ground”.
Maybe Matt should tell us the current murder rate in America’s capital city, his own home of Washington, DC. And compare that with the murder rate in China or Beijing…
As I recall, Matt was very eager to buy a gun to protect himself. How many Westerners living in Beijing feel the same way.
March 15th, 2009 at 10:59 am
No, ECN that had everything to do with China’s open talk about holding too much US debt. That said that talk out of China had nothing to do with the US defaulting and everything with the exchange rte. China is trying to say they can cause a dollar free fall. Of course the US would actually welcome such an inflationary issue right now and it would cause China’s economy serious harm.
Also the fact that China’s holding of bonds have skyrocketed in value tends to through people like Matt off.
March 15th, 2009 at 10:59 am
Can I just say that ECN’s comment in this thread is really annoying and, I think, silly.
The President doesn’t need to inform China about the relative stability of different investment options. They’re grown ups, and they’re perfectly aware of the underlying facts.
What’s going on here (on both sides) is a staring match. China’s testing the new guy by throwing its weight around in the way it always does in the new days of an administration. And Matt is exactly right that the highlighted section of Obama’s reply is meant to highlight (very politely, and indirectly) a Chinese vulnerability. I don’t know the nature of ECN’s expertise, but you don’t have to be a whole lot of an expert to connect the dots here.
March 15th, 2009 at 11:01 am
And yes, of course, the ostensible point is that the risk involved in gov’t securities correlates (inversely) with political stability. Right. But why does Obama highlight that fact at this particular moment?
Because that’s one of the limits on China’s new economic power.
March 15th, 2009 at 12:00 pm
Fallows did a very good piece on China moving forward:
http://www.theatlantic.com/doc/200904/chinese-innovation/3
March 15th, 2009 at 12:02 pm
whoops, linked to part 3/3, here’s the beginning:
http://www.theatlantic.com/doc/200904/chinese-innovation/1
March 15th, 2009 at 12:43 pm
Matt could be right about Obama’s intention with that quote (this is, after all, someone who could say “you’re likable enough” with politically murderous intent) and Obama could be wrong. There is a tendency in the comments thus far to assume that if China’s political system is actually more stable and adaptive than we give it credit for, Matt must be wrong to think that Obama is referencing Chinese vs. US political stability, which ignores the possibility that it’s Obama who has it wrong. Personally I think Matt and Obama (as interpreted by Matt) are correct, since after all we’re talking about probabilities and it seems pretty uncontestable that China’s regime has more chance of a catastrophic breakdown than ours.
March 15th, 2009 at 12:51 pm
Why a small country? They could have a decades long conventional war with India and barely put a dent in either country’s population.
March 15th, 2009 at 12:52 pm
It’s our fate to live in interesting times.
March 15th, 2009 at 1:03 pm
Sounds like more Obama diplomacy at work. First snub the British PM, and then stick your finger in the eye of China. Heck of a job, Brownie.
March 15th, 2009 at 1:08 pm
Did something else happen? Please tell me that adults are not seriously talking about this DVD crap.
March 15th, 2009 at 1:22 pm
I don’t think that was DTM, so it’s probably not “adults” talking.
March 15th, 2009 at 1:59 pm
China may be flexing their muscle a little bit. Showing us that we are more reliant on them than we thought. China says one thing and we run around trying to fix it.
March 15th, 2009 at 3:26 pm
soullite sez:
They better pick some little country to kick the shit out of fast or they are going down.
I thought that was a specialty of tough guys like soullite: Viet Nam, Panama, Grenada, Iraq.
Before that: Cuba, Phillipines, Nicaragua.
China has a way better record than the U.S. in that regard.
March 15th, 2009 at 3:41 pm
DTM: I thought it was some clever disguised snark, but I just didn’t get it.
March 15th, 2009 at 3:45 pm
Let’s try to look at China’s situation objectively. Downside: some analysts are saying that Chinese unemployment rates can reach 30 percent. That’s like the unemployment rates in the US during the Great Depression. China can lecture us about the necessity for saving more and not running a deficit, but it was our deficit that fed their prosperity. They can dump our paper, but that will make any export recovery with the US further out. Upside: Chinese banks are over capitalized. They, at the direction of the government, can start lending to stimulate their economy. On top of that, as a percentage of GDP, the Chinese stimulus package is even bigger than that of the US. Moreover, the Chinese population has lived through hard times before — the Cultural Revolution, Deng’s economic reforms (which initially displaced huge segments of workforce). If Hu Jintao is perceived as making an effort, I think the Chinese government will easily weather the storm.
March 15th, 2009 at 4:08 pm
We can keep them in wood and plastic. China has no reason not to work with us.
March 15th, 2009 at 4:13 pm
Sure, DTM. Sure.
STFU, sucka!
March 15th, 2009 at 5:02 pm
Re: The idea seems to be that China, like Russia during WW1, will fall to revolution unless it sustains 8% growth.
China isn’t analogous to Russia in 1917, most importantly because there’s no equivalent now to the Bolcheviks then.
March 15th, 2009 at 7:46 pm
Well, let’s see…
China has had thirty straight years of the world’s fastest economic/industrial growth rate, and probably the fastest increase in standard-of-living for ordinary people…
America is and has been run by a criminal conspiracy which has looted the national treasury, made the (undeserving but well-connected) rich incredibly much richer, and impoverished huge portions of the once middle class…
Yep, I really, really think that *China* is the country that’s probably heading for a popular revolutionary uprising…
March 15th, 2009 at 7:46 pm
The Chinese can fight and win a currency war and a trade war but they cannot win a shooting war. That’s America’s ace in the hole.
March 15th, 2009 at 8:02 pm
Won’t the real DTM please stand up, please stand up, please stand up?
March 15th, 2009 at 10:21 pm
johnnyk Says:
March 15th, 2009 at 3:26 pm
soullite sez:
They better pick some little country to kick the shit out of fast or they are going down.
I thought that was a specialty of tough guys like soullite: Viet Nam, Panama, Grenada, Iraq.
Before that: Cuba, Phillipines, Nicaragua.
China has a way better record than the U.S. in that regard.
========================================================
Guess the depends on how you define “better”. There’s Tibet of course. They tried with North Viet Nam and got their butts kicked.
March 15th, 2009 at 10:50 pm
What shooting war? That’s so 20th century. They would kill our satellites and take out our infrastructure with a cyber attack.
March 15th, 2009 at 11:00 pm
Both China and the US could have done this privately, undoubtedly have. The public tete a tete was meant for the global community, especially the G20.
Readers should be totally aware of the fragile political and economic fence on which each of we two massive powers teeter. That is the message. The US must project confidence globally by soaking up debt–without fear of failure (default). The Chinese are probably in a worse position because, as noted, their only alternative political system is anarchy. That would be a huge flip, entirely possible (They have more that 10,000 riots a year.), and would dissolve the global economic system. They must project strength, which this message provides.
March 16th, 2009 at 10:11 am
For those who believe that China and the U.S. are more or less equally reliant on each other I would suggest that in this so-called “equal” relationship, the long term outcome is more likely to favor the lender than the borrower. Two salient points:
The U.S. has clearly indicated that it is going to continue to borrow massive amounts of money. Sure the Chinese are going to continue to borrow. But the important questions are how much? and an what terms? However much or little China borrows, they will ultimately dictate the terms — most importantly the interest rate we will pay them. And it is naive to believe that China will ignore the expected relationship between interest and inflation rates. They will modulate their lending to us based on their assessment of their expectations of real value.
Which leads us to the second point. There is an assumption by all the “China deniers” that they will be forced to invest in the U.S. because there is no better place to put their money. But investors, in anticipation of inflation, wisely put their money in “stuff”. Gold comes to mind. But in reality, the “gold” that is out there for China is all the “stuff” they know from recent experience they will need to continue to grow. Like oil — where they have recently “invested” $30 billion in Russia for a 20 year supply of oil at 300,000 bbl/dy or their purchase of a substantial mining company which will supply them iron ore for years into the future. The worse the economic situation becomes, the cheaper assets around the world become. China has already undertaken the acquisition of substantial resources and manufacturing assets(at bargain prices) which will sustain them in the future.
The U.S. and China may be mutually interdependent, but I’ll pick the lender in this race. As Damon Runyon once said, “the race isn’t always to the swift, but that’s the way the betting goes.”
March 16th, 2009 at 11:52 am
No sovereign issuer of currency “borrows” it’s own money from someone else. The U.S. governement could stop issuing Treasuries, and simpley allow reserve balances to build in the banking system, tomorrow with no deleterious consequences.
Someday, I dream that we will have economic and political leaders who will have a basic understanding of our how our economic system works…