Our fictional Auditor Zhao will learn in a few short months (i.e. the present) that the default rate for loans to local Chinese governments might be as high as 20%. And how will China absorb this kind of shock? By coming to collect on American debt?
Context: up until now, I have grown so tired of people complaining about the United States debt. Those are the complaints of frat-boy robots chilling at the Union Pub on Capitol Hill, trying to sound awesome and important by railing on about something that should take a back seat to more stimulus - without solving that problem with taxes on the rich. I guess if you consider a Lacoste polo shirt kick-around clothing, you're not paying attention to the unemployment rate, or the crumbling infrastructure, or the gilded yet oily vice in which big business has placed our collective genitalia. We need job creation, higher median income, nicer trains and fewer prisons.
But what if the Chinese need to come collecting on our debt to them because of this crisis? And if they do, and we can't pay up, what next? Further limit exports on rare-earth elements? Cease buying U.S. debt altogether? I leave that to the movers and shakers, and professional mover/shaker watchers, to decide...
If China refuses to buy more US debt, we can always monetize and take a moderate hit to the value of the dollar. Would be good for the economy, and might spur the Eurozone to devalue too.
ReplyDeleteWe don't need nicer trains, we need straighter tracks and more mass-transit-friendly cities, which are problems much more difficult to solve.