China's Place in Our Economic Ecosystem Today the thing that we were assured would never actually happen, happened: The U.S. government took mortgage giants Fannie Mae and Freddie Mac into conservatorship--a fancy way of saying that U.S. taxpayers are now on the hook for as much as $500 billion in bad debt. Wall Street responded with relief and a rally of 2% in one day. How long-lived this rally will be remains to be seen. Wall Street has been nothing if not volatile this year: Up 2% one day, down 3% the next. Whatever happens next, expect to hear the phrase "Fannie and Freddie were just too big to be allowed to fail," lots of times in the coming weeks from all sorts of public figures as they pat themselves on the back and reassure a jittery public that this is absolutely the right move and it absolutely had to be done. What you might not hear quite as often, if at all, is an explanation of precisely why it had to be done. Yes, part of it has to do with the size of Fannie and Freddie and the crisis in the financial markets, but pointing to that as the main issue actually begs the real question. The real, $500 billion question, the one you probably won't hear batted around much this week is: "Can the U.S. survive without Chinese money?" No we can't, not for even a day. The U.S. government is so dependent on constant infusions of Chinese money right now that if that single source of funds were to dry up, our government would experience such a severe shortfall it would shut down almost immediately. The financial pain we are currently experiencing would look like happy days, and the entire world would be thrown into a financial crisis so severe it would take decades, if not generations, to correct. How can this be? We don't export all that much to China. Mostly we import cheap crap that fills our stores. China also provides the raw materials for the few manufactured items we do still produce here. Most of our steel now comes from China. Ditto fabric, computer chips, electronic circuits and car parts, and much more. But by far the most vital resource the U.S. receives from China is money. The Chinese actually loan us most of the money we use to then buy their stuff. The recent tax rebate incentive package meant to stimulate the U.S. economy (by getting us all to run out and buy $600 worth of Chinese crap), was financed by, guess who? The Chinese! China does not loan the U.S. money the way a bank loans money to an individual person. Instead, what China does is buy up U.S. debt in the form of mortgage-backed securities. China does this, not because China loves us so very much, but because, until recently, U.S. mortgage-backed securities were a great investment. The entire world widely assumed (until very recently) that U.S. homes only ever appreciate in value. Mortgage backed securities were a safe bet, and China made money buying them. The fact that Chinese investment also allowed the U.S. financial system to function so that banks could extend credit to U.S. citizens and factories who then could buy up Chinese products by the ton, thus making a perfect economic circle, was frosting on the Chinese cake. But when U.S. homes began to lose value at an alarming rate. so fast and so furiously that even 'good' loans held by Fannie and Freddie began to go 'upside down', the Chinese began to make nervous noises, and fear of a global slowdown began to spread. The truth is, the U.S. had to bail out Fannie and Freddie not because Fannie and Freddie are too big to fail, but because the United States is too big to fail. You might not hear it put exactly that way.

Quoting from [Aussie]:

That's crap.

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China must invest billions in US securities each year in order to maintain its currency peg, otherwise itshorribly undervalued RMB would go through the roof pricingChinese imports out of USA markets.

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The fact that the Bank of China choose to buy $100 billion of sub-prime securities, equivalent toabout 8% of China's foreign reserves, instead of investing in USA treasury notes is its own stupid bad judgment - tough titty!

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But on latest news,the US taxpayer will now pick up the tab with this $700billion bailout gift. At the end of the day,the USA taxpayer (or at least future generations) will pay the price for China keeping its RMB artifically low.Second to only the Wall Street clowns, China's manipulation of its currency value is the real scandal here (which Bush and Co haven't the guts to tackle).

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"Can the U.S. survive without Chinese money?"

No we can't, not for even a day.

You see ,china and US are all important country in the world ,no one can ignore it .

when USA plunged into enconomic crisis ,most country wil be influenced by it ,and so will china .No one can deny that our enconomic is  going through a big real test ,all of us should do our best to help ,no one can deny that .its true

  may we live in peace world ,no war ,no crisis

 

best wishes

 

Quoting from [francis teo]:

Quoting from [Aussie]:

That's crap.

.

China must invest billions in US securities each year in order to maintain its currency peg, otherwise itshorribly undervalued RMB would go through the roof pricingChinese imports out of USA markets.

.

The fact that the Bank of China choose to buy $100 billion of sub-prime securities, equivalent toabout 8% of China's foreign reserves, instead of investing in USA treasury notes is its own stupid bad judgment - tough titty!

.

But on latest news,the US taxpayer will now pick up the tab with this $700billion bailout gift. At the end of the day,the USA taxpayer (or at least future generations) will pay the price for China keeping its RMB artifically low.Second to only the Wall Street clowns, China's manipulation of its currency value is the real scandal here (which Bush and Co haven't the guts to tackle).

.

"Can the U.S. survive without Chinese money?"

No we can't, not for even a day.

 

we cant do without US

Quoting from [cnhopeful]:we cant do without US

I've got bad news for you: you'll have to learn to live without the US, like it or not.

The demise of the US is an established fact, and it's only because of the humongous "package" of frightening consequences that awaits us that people prefer to live in their dreams and don't want to see the reality.

In fact, some weeks ago the prediction of what is going on right now was severly attacked, and people who shared my opinion were ridiculed. Though the writing clearly was on the wall, people refused vehemently to see it.

So nothing has changed, basically. The pipe dream continues, despite of all evidence to the contrary.

In year 2006, some Economic gurus has already predicted that after Beijing Olympic 2008, the world economic will meltdown.


It is true, and my mentor actually asking my people to start earning money to be cash rich, to buy asset after the economic meltdown.


It is true. lots of prediction become true...

In fact the next prediction that will happen, like what happened 80 years ago...

Oct will be worst meltdown...


We will see.

USA manufactures really good debt (the difference between present day value of assets and debt is about $5 trillion - meaning USA is insolvent and that the $600 billion bailout won't touch the sides). 

Do you still drink baby milk?

But seriously, as bad as this melamine milk is, it's also easy to correct. But how do you solve the problems in the US, especially given that the dictator-in-chief is a proven satanic with an IQ of 91?

Suppose you had to solve one of these problems, while I had to solve the other. If you had a choice, which skunk would you choose to kick? Obviously the milk problem, right?

The US problem has no solution anymore. There might have been one long time ago, but as of now, they are beyond the point of no return. RIP USA! Ok, granted, I'm saying this a few days too early...

No body can live separately.

Quoting from [trade3c]:

No body can live separately.

Well, the inhabitants of planet Earth can live without people from Mars (supposing there were people), and the rest of the inhabitants of planet Earth can also live without the US. As I said before, it might not be easy to adapt to this new situation, but it will happen and we'll have to get used to it.

I think it's about time for everybody to develop a "parallel economy". That means, continue dealing with the US wherever contracts are in place, but also start looking for alternatives in other countries. So when the final crash comes, you'll be ready to continue - not quite "as usual", but you would have a saftey net.

Don't bet on a loser!