Thursday, February 26, 2009

Let Me Revise and Extend My Remarks

Tyler Cowen of Marginal Revolution made an obscure reference in a post yesterday about Social security and fiscal policy. Here's the seeming non sequitur in his post:
If I were Taiwan I'd feel a wee bit more worried these days.
Before I started blogging—late last September, to be specific—I emailed Tyler an early version of my Hu's in Trouble Post. He thanked me for the email, so I knew he had read it. I'll take the line above as confirmation that he hasn't forgotten it.

I've posted once more on China's massive underwritting of our debt to say that people that think that China will sell dollars on the open market aren't considering the other possibilities. Someone identified as "ws1835" commented on Tyler's post in part:

It was openly discussed that Clinton was begging China to keep buying Treasuries. That part wasn't news to me. The surprise for me was that the commentators openly discussed Chinese responses directly addressing the expectation of significant concessions from the USA in return for continued financing.

And when I say significant, I mean huge. There was no mention of Taiwan. The discussion cited items like troop reduction/withdrawal from S. Korea and Japan. Funny how you didn't hear about those topics from the Western press.
Given our massive and growing debt and China's strategic interests, they will continue to buy our treasuries. That they're using the mere offer to buy them as leverage is unfortunate for us, but smart for them. Here are a couple of questions to ponder:
  1. How much debt forgiveness is Formosa worth?
  2. ...Tibet?
  3. ...extradition of the Dalai Lama?
Yeah. China's going to keep buying US Treasuries, because their greatest coup will be the role reversal of playing might first world debt forgiver to a banana republic: the USA.

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