I don’t know, but it sort of looks that way to me.
Markets to a certain degree will always be volatile, and to a great extent we are fortunate that our domestic markets are deep enough to absorb certain shocks. But what happened yesterday underscores the exposure of our economy to economic developments in countries like China. As we have been running trade and budget deficits, they have been buying our debt and in essence becoming our banker. While the President has touted recent improvements in the overall budget deficit picture, it is undeniable that the exponential growth of foreign debt in the last six years has undermined our economic standing. We have to curb these deficits and ensure foreign governments don’t own too much of our public debt and take steps to ensure that our economic well being is soundly in our own hands.
Frankly, I’m skepitcal that the Chinese will be able to exert such control over the U.S. economy given that the President and U.S. Congress don’t have that much control and they get to enact laws. Sure the Chinese could do something like dump all the debt they have been buying up, but once word of that got out, they’d quickly find that whatever they couldn’t sell would be worth far, far less than they paid for it. On top of it, such an action would likely be bad for the global economy and China does engage in lots of exports. This wouldn’t be a case of cutting off one’s nose to spite one’s face, but cutting off one’s head because one is a complete idiot.
Hillary’s plea for basing policy on facts not ideology strikes me as simply false. What she is proposing sounds very much like mercantilism and possibly some of the protectionist nonsense that goes with that ideology.
Here is an interesting article on this kind of stuff at Tech Central Station.
Tuesday’s market melt-down is exactly the sort of thing the Dobbs-Buchanan-Hillary Clinton-economic-school-of-nationalism loves to complain about. In fact, they just did; as I stepped away from my computer a moment to watch the news, I saw this letter from Hillary Clinton to the Treasury Secretary. China’s market crash causes a mini-crash here. Aha, they say, this is what’s wrong with globalism.
But I’m not sure they’ve really thought things through. After all, if a ten percent drop in the SSE, yields a three percent drop in the Dow, what would taking China completely out of the economic picture do? In other words, if the sino-screechers are right that trade with China leaves us vulnerable to downturns such as this week, then doesn’t that require them to believe that the run-up was due to the trade to begin with? If trade with China is to blame for the value lost on Tuesday, than it gets the credit for the value that was there before?
Unfortunately for Hillary this above is true. Frankly, I see this kind of inter-dependence as a good thing. If we are dependent on China and they us, then there is less incentive to do something like say get into a shooting war of Taiwan or some other hot spot in Asia.
Further, if Hillary is right that ownership of a large percentage of U.S. government debt makes the holder of that debt a danger…then shouldn’t she be most worried about the U.S. public? After all according to Hillary’s numbers about 56% of the debt is domestically owned. If those owners decided the game was up and sold their government bonds…well it would make whatever China could do look like a joke.
If all of this strikes you as worrying about the absurd…well we are talking about Hillary’s cogitations on economics.
