While Barack Obama was delivering his flowery speech justifying the indefinite imprisonment without trial of people suspected of violating laws against terrorism, the New York Times and Bloomberg were reporting on the financial consequences of out-of-control federal spending.
You’ll recall that the Bush administration, which was insistent on continuing the brutal embargo against Cuba, borrowed enormous sums of money from the communist regime in China to finance the U.S. Empire, especially the invasions and occupations of Iraq and Afghanistan. Over the 8 years of the Bush administration, China became one of the U.S. government’s principal creditors. According to an article by Mark Gilbert in Bloomberg entitled “Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone,” “China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of foreign-exchange reserves.”
Guess what China is now doing. According to the New York Times article, while China continues to lend massive amounts of money to the U.S. government, it is shifting the mix of its investment portfolio by lowering its holdings of long-term U.S. debt and replacing it with short-term U.S. securities.
Why is it doing that? Chinese officials are obviously convinced that the out-of-control federal spending and rapidly growing U.S. debt will bring about a massive debasement of the dollar, which will crunch the value of long-term debt securities. As Wen Jiabao, China’s prime minister put it earlier this year, “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets.”
According to the Times, China has also been stepping up its purchase of commodities, such as iron ore, crude oil, grain, gasoline, diesel, and sugar. Also, “after six years of silence, China unexpectedly disclosed last month that it has been gradually buying gold from domestic producers. The country’s reserves had climbed 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.”
Meanwhile, the U.S. government just keeps spending and spending and spending, with no end in sight, especially given the ever-increasing military needs in Iraq and Afghanistan and ever-increasing welfare needs in the United States. According to Bloomberg, “President Barack Obama’s administration has pushed the nation’s marketable debt to an unprecedented $6.36 trillion. It raised on May 11 its estimate for the deficit this year to a record $1.84 trillion, up 5 percent from the February estimate, and equal to about 13 percent of the nation’s GDP.”
Standard and Poor is now threatening to downgrade the U.S. government’s AAA credit rating on its debt instruments, which it has just done to Great Britain’s credit rating. Bill Gross, the co-chief investment officer of Pacific Management Co., told Bloomberg, “The markets are beginning to anticipate the possibility” of a downgrade though “it’s certainly nothing that’s going to happen overnight.”
No wonder the Chinese are now talking about the Chinese renminbi replacing the U.S. dollar as the world’s reserve currency.
While it is imperative that libertarians continue focusing on the fundamental immorality of U.S. foreign policy — that is, the assassinations, invasions, occupations, bombings, torture, indefinite imprisonments, denial of due process, denial of trial by jury, cancellation of habeas corpus, and other infringements on civil liberties — it is also imperative that we continue reminding our fellow Americans what these people are doing to the financial and economic well-being of our country. Empires bankrupt nations. And that’s precisely what the U.S. Empire is doing to America.
P.S. The debate on Afghanistan in which I recently participated is now online. It was sponsored by the Donald and Paula Smith Foundation in New York City. The debaters were Max Boot (Council on Foreign Relations), Chris Prebble (Cato Institute), Larry Goodson (Army War College), and Jacob Hornberger (president of The Future of Freedom Foundation). I think you’ll really enjoy this heated debate. One lady said that it was the best debate she had witnessed in the Smith Foundation debate series.