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Posted by D Sherman on Saturday, November 29, 2008 at 14:22:16 :
In Reply to: Re: Hopefully that wont happen.... posted by MoparNorm on Saturday, November 29, 2008 at 13:26:49 :
We need them as much as they need us. Something that didn't get reported much when the feds bailed out the two quasi-governmental mortgage repackaging companies ("Fannie" and "Freddie"), which started the whole bailout ball rolling, was that the single biggest holder of FNMA (Fannie Mae) bonds is the Red Chinese government. If "Fannie" had been allowed to go bust, China would have felt most of the pain. Do you suppose the Chinese ambassador had anything to say when a bailout was being discussed?
The way it is now, if we hurt them by not buying their products or by not paying back our loans from them, they hurt us by not lending us any more money. If they hurt us by refusing to lend us money, we hurt them by not buying their products. Now that there's massive layoffs in China, they need us more than ever, on the other hand now that there's a massive need for cash in the US, we need them more than ever. It's like two married people who hate each other but can't afford to split up. It'll probably keep both of us out of a shooting war, so long as both sides hold to the devil's bargain.
One thing I wonder about China is how the Chinese workers will handle their first capitalistic depression. Will they go back to their grandparents' rice paddies? Will they riot? I suspect there's a lot of social unrest in China now that we're not hearing about.
As for the US, I still think the only two possible outcomes, long-term, are depression or hyperinflation. Obama can't do what FDR did because when FDR took over, the dollar was on the gold standard and government debt was minimal. FDR financed his make-work projects by taking the dollar off the gold standard and borrowing huge amounts of money. Since we're already off the gold standard and we're already borrowing huge amounts of money, those options are off the table. The scary thing is that by a lot of people's accounts, FDR's make-work projects never did bring the private sector economy out of the depression, even though they got a lot of good things built. It took WWII to finally cure the depression, and it took post-war inflation to pay off the debt.
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