Ownership 0031510

The financial bull is in the china shop.  Both the bull and the shop are now owned by China (PRC).  The United States is not the greatest debtor in the world when consider against its GDP but according to government economist it is the greatest debtor in real dollars.

The problem of economics can be linked to the development of computers, now every theorist can crunch their own favored numbers for favored outcomes.   That said, comparing debt/GDP of the United States’ 54% against China’s 18% indicates a disparity between the two.  America is carrying three times the debt of China.  China is also one of the fastest growing economies at 8.7% GDP while America dropped into negative returns in 2009.  The U.S. projections are that in the next five years its the Debt/GDP ratio will grow between 15 and 45 % depending on who’s numbers are used, but the trend is to greater debt.

There is little wonder then that the Bush administration went to China to borrow operating funds (selling bonds).  China already held massive amounts of American debt and in self-interest had to prop up the dollar.  Still faced with a shaky economy the Obama administration has approached the Chinese about devaluing those bonds by financial manipulation.  China strongly opposes the figurative ten cents on the dollar deal, which makes their good faith investment a bad debt.  Did the U.S. government hire two many Lehman Brothers’ bankers?

Already on a fast track it appears that China will pursue its own economic model.  China is building an economic market that may eventually be closed to U.S. participation.  China’s Premier Wen Jiabao acknowledges that China economy is in transition and fragile.  A massive American default could rip the fabric of growth for a period but the cost to America would be greater.

For most of this century China has been out making friends, providing aid and inking resource agreements around the world.   China has oil agreements with Iraq, Sudan, Canada, Argentina, Bolivia, and Chile and is building a pipeline across Afghanistan linking to CAS and Iranian oil fields.   America on the other hand finds an increasing number of oil producers are not friendly either on geo-politics and ideology.  The Bush missteps in attempting to take over friendly oilfields further alienated producers.  America’s history of supporting dissent and encouraging ethnic insurrection in foreign lands while suppressing it at home does not encourage world trust.

In two years seven of the nine seats at the center of Chinese power are up for election.  It is the campaign season in Beijing and reversing the American playbook, nothing looks better for a politician than to be tough on the West.  Expect China to assert itself, it will not step lightly on the world stage.  Chinese memories are long and western exploitation is still fresh in living memories.