China Telling Obama They Don't Like His Fiscal Policies

China has been piling up US bonds, in essence funding our national debt and they would like to know they will get their money back.

The risk is not that the Obama administration will default on its debt. The real risk is that the money supply will skyrocket and deflate the value of the debt. If the price of a loaf of bread goes from $2 to $200, the value of the bonds the Chinese hold will be destroyed. And, by the way, so will your savings account.


Via Powerline:

Of course, what the Chinese are worried about is not that the United States government will default on its bonds. That obviously won't happen. The Chinese concern, now being expressed openly for the first time, is that the U.S. will adopt the standard debtor's remedy of inflating its currency and paying back its debts in shrunken dollars. Why are the Chinese worried about this? Because Barack Obama's budget proposes to borrow trillions of dollars, injecting them into the U.S. economy without any offsetting wealth being created. The inevitable result, as any economist not in the pay of the Obama administration or the Democratic Party will tell you, is inflation.

...

Barack Obama's budget contemplates that over the next five years, the federal government will borrow more money--run up more debt--than has been incurred during the entire history of the Republic, from George Washington to George Bush. It's easy to draw up a budget that contemplates debt if you're confident that someone is willing to lend you the money. In reality, though, the only plausible creditor is the Chinese.

With their shot over the bow, I think the Chinese are telling Obama that they don't like his budget. It is obvious to them that it will cause inflation, even if Obama himself doesn't understand the problem. Thus, I think they are telling Obama that they are willing to lend our government more money only if 1) the Obama administration follows a more responsible fiscal policy, and 2) in any event, they will insist on higher interest rates in the future to compensate themselves for the risk of inflation. I assume Obama will have to go along, since there seems no prospect of a Plan B.

How ironic: we American conservatives may well be in the position of hoping the "Communist" Chinese can impose fiscal discipline on our shamefully incompetent government.