Chris Hayes: The China Debt Dance

The China Debt Dance: As Barack Obama touched down in China, the American press seemed to settle on a single story line. The president, wrote the New York Times, will be "assuming the role of profligate spender coming to pay his respects to his banker." And the Wall Street Journal highlighted "China's Blunt Talk for Obama," about US economic policy and the "nervousness" expressed by Chinese leaders that "huge U.S. budget deficits will weaken the dollar and slash the value of China's massive foreign-currency holdings."

The karmic symmetry of this state of affairs makes for an appealing fable. The once mighty United States, which for decades used the IMF to impose its will on the domestic policies of developing countries across the globe, is brought low by its profligacy and forced to beg sufferance from the miserly Chinese.

But just a few days here in Shanghai (on a trip sponsored by the China-United States Exchange Association) has convinced me it's bullshit and the Chinese know it.

"There's an old Chinese saying," Yang Jiemian, president of the Shanghai Institutes for International Studies, told me. "If you borrow a hundred dollars, you are borrower; if you borrow a million dollars, you are not borrower." There's an English version of this, which is a bit zippier--"When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank"--and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars...

Comments

[dhenwood]

Ok, so the debt stock isn't a problem, but what about the flow? It may make little sense to talk about China selling its dollar reserves, but will they continue to buy all the Treasury paper we need them to buy in the future?

[robert waldmann]

What is going on ?!? You linked to the article without any criticism. Do you agree with Hayes's claim that

"In the 1990s Bill Clinton was persuaded by Robert Rubin and others that the deficits he inherited required him to abandon any extension of the welfare state,"

What about the expansion of the Earned Income Tax Credit ? How about health care reform. The effort wasn't abandoned by Clinton.

The assertion is grossly false. On the order of claiming the Earth is flat.

I have the sense that I am the only person who actually read the article (Krugman and Black also link to it with no criticisms).

Do you agree with Hayes *and* still think that Rubin should be President ?

I don't think that letting the claim that ""In the 1990s Bill Clinton was persuaded by Robert Rubin and others that the deficits he inherited required him to abandon any extension of the welfare state," is a good way to grasp reality with all eight tentacles.

I mean facts are facts. If you decide some false claims are not important, where do you draw the line ?