Quick thoughts on borrowing from the Chinese

As the New Year rolls around, the United States Treasury will find itself more and more busy conducting auctions to pay for our $700 billion bailout of the banks. The bulk of that money will come from selling American government bonds and government-backed mortgage debt to the Chinese who have the most of what we need right now - greenbacks. Money from China is not necessarily bad, provided one uses it for the right purposes. Over the last eight years, monies from China were primarily used to finance the quagmire in Iraq and hand out cheap credit to individuals who did not have any business owning that half a million dollar home. As soon as the end of January rolls around, the new Obama administration’s stimulus package will demand an additional borrowing of upwards of a trillion dollars - the bulk of it to be borrowed from China – again by selling them IOUs like US government bonds and government-backed mortgage debt. We hope that this time around the borrowed money from China will be put to the national good. One can only hope.

From here: By itself, money from China is not a bad thing. As American officials like to note, it speaks to the attractiveness of the United States as a destination for foreign investment. In the 19th century, the United States built its railroads with capital borrowed from the British. In the past decade, China arguably enabled an American boom. Low-cost Chinese goods helped keep a lid on inflation, while the flood of Chinese investment helped the government finance mortgages and a public debt of close to $11 trillion. But Americans did not use the lower-cost money afforded by Chinese investment to build a 21st-century equivalent of the railroads. Instead, the government engaged in a costly war in Iraq, and consumers used loose credit to buy sport utility vehicles and larger homes. Banks and investors, eagerly seeking higher interest rates in this easy-money environment, created risky new securities like collateralized debt obligations.

Images from Fang Lijun's work at the Arario Gallery earlier this year.