This headline from the NY Times has me a little worried this morning. The Chinese Government owns a lot of US debt and we are going to be borrowing a hell of a lot of money from them to pay for the much needed stimulus package, bank bailout, and new budget. Not including the more than likely need for another stimulus package in the near future. The Peoples Bank of China and one their Soverign Wealth Funds own a lot of US Treasury bonds, we financed our over consumption and debt spending with Chinese money over the last 8-10 years. The fact that their government is nervous about the stability of the dollar makes me nervous. While I agree that it would not be a wise decision for the Chinese Government to start selling their pool of US Treasury bonds now, it would flood the market causing the worth of those Treasury bonds to collapse, it doesnt mean they couldnt start selling them slowly in the near future and invest their money elsewhere (say in the Euro).
I dont trust the Chinese government. I am suspicous of them for a whole host of reasons (doctored weather reports, Tibet, all the corruption surrounding the Three Gorges Dam project etc) I feel very uneasy that the US Government is so beholden to them to finance our debt and finance our own government. We’d be so incredibly screwed if all of a sudden they stopped buying our debt or decided to sell their US Treasury bonds. They could easily have the US Government, pants down, over a barrel.