Obama Foolishly Disses America’s Chinese Bankers
In one of today’s richest ironies, America’s fiscal health – such as it is – hinges on the generosity of the Chinese Communist Party. Annoying Beijing’s mandarins could prompt them to skip our Treasury auctions. If China stops lending the Treasury money to underwrite Uncle Sam’s spendaholism, the Federal Reserve will need to print even more dollars to nudge the day of reckoning back over the horizon.
The Chinese have urged Washington to stop spending and printing so much money, lest inflation turn China’s $800.5 billion in Treasuries into a giant misfortune cookie. Chinese officials have grown increasingly vocal – and decreasingly diplomatic – in asking the US government to start practicing fiscal discipline.
“If they [the Fed] keep printing money to buy bonds, it will lead to inflation, and after a year or two the dollar will fall hard,” predicts Chen Siwei, former vice-chairman of the Standing Committee of the Chinese National People’s Congress and now its green-energy guru. “Most of our foreign reserves are in US bonds, and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies.” Ambrose Evans-Pritchard of London’s Daily Telegraph reported September 6 on Siwei’s remarks at the European House-Ambrosetti’s economic forum in Cernobbio, on Italy’s breathtaking Lake Como.
“Gold is definitely an alternative, but when we buy, the price goes up,” Siwei continued. “We have to do it carefully so as not to stimulate the markets.”
In other words, like a panda bear in a jewelry shop, China is tiptoeing away from the dollar and into gold, and doing so quietly enough not to rattle commodity and currency traders. This month, China also bought $50 billion in Special Drawing Rights, the International Monetary Fund’s brand-new Esperanto currency that blends euros, pounds, yen, and dollars.
“The US spends tomorrow’s money today,” Siwei’s bluntly added. “We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.”
Siwei is absolutely right. The Bush-Obama Administration’s fiscal incontinence is staggering, unprecedented, and potentially lethal. Fiscal year 2010’s budget deficit likely will reach $1.4 trillion. Far worse, the Heritage Foundation’s Brian Riedl estimates, President Obama will generate $13 trillion in fresh deficits by 2019, swelling publicly held national debt to $20 trillion, or 99 percent of Gross Domestic Product.
Obama should shift into reverse. He should use his formidable persuasive skills to secure an immediate spending moratorium; slash the budget across the board by, say, 20 percent, and set future expenditures at or below inflation. If he cannot do this, America will have little choice but to keep the Chinese Communists cheerful and eager to buy U.S. bonds.
But rather than pursue the fiscal conservatism counseled by Siwei and other sober Chinese – or just keep Beijing calm and cooperative – Obama did something supremely idiotic: Last September 11, he launched a trade war with Beijing.
For the next three years, Chinese tires will face a 35 percent import duty. This is like slashing your banker’s steel radials just before handing him your home-mortgage application. Fiscal recklessness aside, this is dreadful trade policy.
First, no surprise, the target of protectionism retaliated. China immediately commenced anti-dumping actions against US chickens and auto parts. Americans in those industries soon will suffer.
So, too, Cooper Tire and Goodyear. These US companies manufacture tires in China and now will pay a 35 percent tariff on each one they ship home.
Finally, poor Americans will lose as low-cost Chinese tires, some 17 percent of the US market, suddenly dwindle. “I think within the next 60 days, you’ll see some pretty significant price increases,” Del-Nat Tire Corporation president Jim Mayfield predicted in September 14’s Wall Street Journal. He believes “entry level” tire costs will zoom 20 to 30 percent.
In yet another irony, Obama promised to be the multi-lateral, consensus-building antidote to the venomous George W. Bush and his allegedly go-it-alone, my-way-or-the-highway diplomacy. Today, Barack Obama looks like quite the unilateralist.