Everybody needs to pay its liabilities, even the US.

Everybody collects something: be it stamps, rare coins, partners or autographs. Humans need something they can value, identify themselves with and own in extend. It’s common and not spectacular at all. But if one nation collects others’ debt and almost owns the greatest nation of our time, it is worrisome.

China is one of the lucky countries which didn’t suffer this ‘much’ during the financial crisis last year. Export decreased slightly, while unemployment and bankruptcies of little companies increased, but thanks to a well managed budget, China lists one of the greatest surpluses and Chinese don’t face foreclosures based on high mortgages. You can say, that the conservative point of view, with which Chinese treat money, prevented them to be carried away by the financial maelstrom.

What happened through the crisis was astonishing from my point of view: banks as well as companies turned to China to get financial aid, i.e. Cadbury, HSBCMarks and Spencer, Tesco and Fannie Mae and Freddie Mac were supported even before the storm. Was the US government considered a stable source of cash for decades, it seems to be China’s turn to take over now.

China owns around $ 450 billion or ½ of 1% in outstanding US debt. Ergo $ 450 billion/ 365 days * .005= $ 6.1 million are paid as interest each day.

So why does China still pay for useless US securities instead of taking advantage of the American misery? I assume that such an action would cause a worldwide outcry and has probably a very negative effect on China. So what China does is way smarter: they tie the US closer and closer to transfer their own interests into action. They use western knowledge to develop their own goods and technology, till they reach the same level of comprehension. In return they’re considered a nice debt relief and receives appreciation.

As for my part, I find it more than disturbing, that one country has such a big influence and can put pressure on another one due to the other’s encumbrance. What many don’t seem to realize: There is nothing like a free lunch! 

Eventually, while being patient, we are going to see, what China wants back in return. Smart as it is, it will most likely keep its demand small and won’t wake up the sleeping bear (US citizen).

So let’s have a look on the country, which appears so generous and honestly helpful: China celebrated its 30th birthday last year and seems pretty modern and west oriented on its surface. But looking back on its history based on dictatorships, which was taken over by a communistic political system, corruption, no freedom of speech, the suppression of Tibet for 50 years now and the 20th anniversary of the quashing of the Tianamen Square, etc., makes me wonder, how modern and pro-west China actually is.

To consider China a stupid cash cow is the worst assumption that can be made. Eventually this nation will achieve its goals silently: through investments, it ties Africa to it, spreads its philosophy, creates jobs and gets gratefulness in return; has the knowledge of the western society and doesn’t depend on it anymore and eventually can eliminate the US when it comes to fighting for scarce resources and raw material. The awakening will come and its loud roar will echo through the ensuing years, while China laughs out loud.

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7 responses to “Everybody needs to pay its liabilities, even the US.

  1. wow, very even extremely well blog this week. I couldn’t agree more with the points that you made and you also brought in interesting analogies and comparisons. it was fun to read and at the same time reminds us that nothing in life is for free.
    and ur right, china is probably smarter than us all right now

  2. This is also why the U.S. is so incredibly silent on Chinese human rights abuses–our government can’t AFFORD to speak out…literally.

  3. Elizabeth Morgan

    Most ordinary folks realize that China is a huge player in the world economy. Just look for the “made in” stamp on many of the products in your home. Cheap labor really helps keep cost down, doesn’t it? I agree that most of the citizens in the US don’t realize “who” holds our debts. It is quite scary to think how this could be held over our head in the future.

  4. Rebecca Parlakian

    I agree with Elizabeth – the demand for cheap consumer goods is so high and the impact of foreign debt is hard to conceptualize for people. This impacts the behavior of the average buyer, who would rather pay $5 for a “made in China” t-shirt vs. $20 for a “made in the USA” version. On top of this is the very real issue that there are some items (such as televisions) that you simply CANNOT “made in America” any longer (actually I think there is still one manufacturer). So the economically “wise” decision to outsource the production of consumer goods to developing economies has had very real impacts on our own economic situation. Not to mention the loss of control of health and safety issues in offshore production factories… All food for thought: But is it enough that people want to pay more at Target or Wal-Mart?

  5. I was amazed on how close our ties were with China. I thought we only bought products manufactured in China. I did not know that we also borrowed money from them too.

    As for our mortgage crisis, I knew that people were flipping mortgages and loan companies were selling their mortgages to other loan companies to make a profit. I was waiting for the bubble to burst and wondering who in the world could afford these outrageous mortgages.

    • All countries around the world are somehow connected through their debt. These ties aren’t bad as long as they’re not misused. Now I don’t want to allege China any bad intentions, but we shouldn’t forget that they have a different politicial system and way of life and might regard doings from a different angle.
      What the western world can learn from them is, that they don’t live over their financial circumstances.

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