since i can’t explain why china lets the US owe it three trillion and still borrow more, i offer you these

The United States of China: USAia for Sale
Chris Martin, Infowars, May 22 2012

The People’s Bank of China is the Chinese central bank and holds more financial assets than any other single public institution in the world. The State Administration for Foreign Exchange manages the foreign exchange reserves for the Chinese central bank, which exceeds $3 trillion. To put this into perspective the next in size to China is Japan, which manages foreign exchange reserves in excess of $1 trillion. The size of Chinese reserves is disclosed but the composition of the reserves is less transparent. The composition of the Chinese foreign exchange reserves is regarded as a state secret. However, reports from the Bank for International Settlements suggest that US assets represent 60%-70% of the Chinese reserves. This lack of diversification has been costly to China as the US dollar (Federal Reserve note) depreciates. As an example, between 2003 and 2004 the Chinese lost more than $60b in asset value due to dollar depreciation.

The private Federal Reserve controls the US money supply through lending to banks, individuals, and the government. The US Treasury prints and sells bonds (loans with interest) known as T-bills to the general public, foreign countries, and back to the Federal Reserve. The private Federal Reserve creates electronic fiat currency from thin air to purchase the Treasury bonds and holds these bonds as reserves. For every dollar of reserves it creates another nine dollars for circulation in the nation’s banks to lend again to businesses and individuals. Thus, the money supply is constantly depreciated and the national debt is perpetually expanded, a scheme concocted by the banker cartel and sold to the US public as the natural business cycle.

As a result of depreciation and floundering US credit ratings, China has sought to hold other currencies and asset classes. This strain on Sino-US relations undoubtedly is the reason we are now hearing the bombshell news that the US Treasury, for the first time in history, is directly selling government bonds to a foreign government. This means the central bank of China now has an exclusive purchasing arrangement not available to any other central bank in the world. Even Japan, which maintains a substantial and consistent purchasing portfolio of US bonds, must still use Wall Street banks designated by the government as primary dealers. The reports disclosing this ultra-secret relationship suggest China now has a direct computer link to the US Treasury auction system. No public announcement was made and no warnings were given to primary Treasury dealers. To be clear, no law exists that forbids such an arrangement, but this monopoly arrangement remains exclusively available to China.

The implications of this arrangement are significant. Unlike the privately held Federal Reserve run by a secret international banking cartel, the US Treasury is a government entity and all such arrangements should have a Congressional blessing. China is essentially skirting price-gouging that occurs as primary dealers have historically exploited Chinese purchasing patterns. It is clear that China is now enjoying a favored client status given its massive investments in US Treasury bonds. This is not new for the Treasury, as it regularly ignores its public service role. In 2009, the Treasury got caught when it secretly changed the rules for Chinese Treasury purchases, only to subsequently relax and amend the rule under Chinese pressure. The Treasury is still operating under a veil of secrecy and remains unresponsive to efforts to disclose this new dangerous relationship. Wall Street traders are very aware of a phantom trader in the auction of Treasuries due to undeniable pricing anomalies. The Treasury is undoubtedly scrambling to craft language palatable for the US investing public to swallow.

The implications of this arrangement are undeniable. First, a Treasury that believes it has the right to act secretly is dangerous, but also represents expanding collusion with its secretive Federal Reserve master. Second, the current astronomical holding of US debt by China is a national security risk, in the sense that if it decided to sell its holdings it would collapse the market and send interest rates sky high. Third, the direct access mechanism does not promote transparency, perverts capitalism and provides China with unilateral economic leverage that it could unleash to invoke an economic war. This relationship is sold to the public as a necessary symbiosis. The Chinese sell goods to USAia and park the dollars they earn back in USAia by purchasing US Treasuries. What is not discussed is the fact that this perpetually expands the national debt in an attempt to artificially keep interest rates low. The biggest part of this scam is the fact that the private Federal Reserve electronically creates piles of money that causes inflation, a hidden tax on all USAians’ present wealth. It remains difficult to locate any Federal Reserve cartel member or Treasury official to comment on this story, as it is a highly sensitive topic due to the blatant perversion of capitalism, US sovereignty, and resulting national security risk. Make no mistake, what is being conjured up here is the collapse of both the US economy and the Chinese central bank to ensure they both line up at the international banker trough and accept a one world currency and government.

How to make China lend quicker, in secrecy
M K Bhadrakumar, Indian Punchline, May 22 2012

CFR President Leslie Gelb wrote last week:

The Obama administration has quietly altered its plans to move some US security resources from an unthreatened Europe to an uncertain Asia. Administration leaders realized they had gratuitously offended European allies and gratuitously provided Beijing’s hawks with ammunition to argue that USAia was formally and openly instituting a policy of containing China. The Obama team’s minds were surely jolted when so many privately expressed unhappiness about the provocative public pivot.

Gelb commended this rethink on the Pentagon’s so-called “pivot” to Asia because, in any case:

If the US were to be in trouble or require help, it is unimaginable that India, Vietnam, Saudi Arabia, Brazil, Turkey, or whatever country would actively back Washington with money and arms. The US can count on only the Europe Plus group, i.e. Europe plus Japan, Australia, Canada, and Israel.

One caveat to Gelb’s argument is about the capacity of Europe Plus to come to the the rescue of the US in a near future. Another caveat could be that if the US is in serious trouble today and needs back-up with money, its rescuer would be most likely China. An exclusive Reuters report suggests that the Obama administration is putting China as its “money manager” in a privileged status. China will be the only country that can sidestep Wall Street and lend directly to the US Treasury! Howzaat? The Obama administration apparently rewrote financial rules whereby China’s Central Bank can go straight to the US Treasury and buy government bonds in a unique proceedure ignoring the Wall Street middlemen so that the confidentiality of the transactions will remain strictly between Washington and Beijing and, furthermore, Beijing won’t have to pay commission to the Wall Street banks! Even Japan doesn’t enjoy such a privileged status. Now, how do you “contain” the goose that lays the golden egg? Aren’t we all duffers who were sold out on the US’ “pivot” to Asia? Hmm. This Obama is a smart man.


  1. lafayettesennacherib
    Posted May 23, 2012 at 10:55 am | Permalink

    ” Make no mistake, what is being conjured up here is the collapse of both the US economy and the Chinese central bank to ensure they both line up at the international banker trough and accept a one world currency and government

    The collapse of the US economy isn’t hard to spot, but I think “the collapse… of the Chinese central bank” needs some expanding on. I don’t know if this is a devilish master plan; I suspect things are going this way, but it’s just the logical end-game of capitalism and greed. Another way to look at the US debt to China ( one made by some of the modern monetary theory people, and one which perplexes me in some aspects) is as a sort of tribute; the debt will never be paid back, after all, so China is essentially GIVING all this stuff to the USA. For what?

  2. Hoarsewhisperer
    Posted May 24, 2012 at 5:12 am | Permalink

    I think the Infowars article is an uninformed hit-piece calculated to ramp up the fear factor.
    This article from a self-proclaimed expert on monetary policy suggests that China’s Central Bank knows what it’s doing in having ~ 50% of its reserves in US bonds and also points out that it’s a small proportion of total US debt AND that the only obligation on the US, in the medium term, is to pay the interest..
    The nearly infinite capacity of USG to spend
    If you flip through the articles it becomes clear that he knows more about monetary policy than the cranks & liars recommending ‘austerity’ as a cure for the EU’s economic woes,

    Also, googling US debt to GDP turns up a wiki article listing countries with big ratios (in 2011).
    EU 85%
    USA 101%
    Japan 200%
    …and not so big
    ‘Asia’ 40% (China & others)
    Russia 8%
    So it would seem to be a bit premature to hold one’s breath in anticipation of the imminent collapse of China’s economy due to (theoretical) default on a debt which is about 25% of China’s GDP.

  3. Hoarsewhisperer
    Posted May 24, 2012 at 6:51 am | Permalink
    Item 8.4 is the table from which the above % were gleaned.
    (E & OE)

  4. lafayettesennacherib
    Posted May 24, 2012 at 2:59 pm | Permalink

    Glad someone else is reading Bill Mitchell. He can be very hard work – he writes a superhuman amount, and the whole approach seems initially quite counter-intuitive – but I’m beginning to find it easier. His view of imports as a benefit rather than a cost is one I still have some difficulty with – seems others do too with this which seems common to the MMT people. It’s not clear that this can apply to any economy but the USA’s. But what do I know? I just about have the attention span to get through some of his pieces.

    The very good thing about MMT and the work of some other ‘renegades’ like Yves Smith (Naked Capitalism) is it’s soundly grounded in actual banking practice. It’s becoming alarmingly obvious that our lauded economists are actually idiots. Try this – Paul Krugman gets into a public debate with MMT man Steve Keen (debunking economics) and gets serious egg on his face:
    Mainstream economist discovers that banks create money

  5. Hoarsewhisperer
    Posted May 24, 2012 at 8:05 pm | Permalink

    I’m not a Bill Mitchell regular but I’ve read a few things he’s written that made sense, so when his name cropped up in a China Google search it saved time going through Naked Cap’s gigantic archive or ritholtz(?). The first dozen or so pars of BM’s opinion were good enough but I kept reading until his expanded explanations became too technical – which I suppose he has to do to shut the nitpickers up.
    Naked Capitalism had a good, and exhaustive, expose of Obama’s broken promises a few days ago – which is a verbose way of reminding us that if Obama’s mouth is moving, then he’s lying…

    There’s an old joke that goes
    “Economists were invented to make astrology look good.”

  6. Hoarsewhisperer
    Posted May 25, 2012 at 7:14 am | Permalink

    China from a different angle – from
    China’s rich head for the exit

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