The United States recently sent an SOS to the People's Republic of China, SOS standing for the usual thing -- Save Our Ship -- along with Secretary Of State. The desperation was expressed publicly in a press conference wherein the above-indicated cabinet member pleaded for the Chinese to continue buying U.S. bonds. This modern-day Rosie the Riveter offered the rosy and riveting argument that "truly we will rise and fall together".
The spectacle and the sentiment both startled me, although my journalistic colleagues mostly snoozed. The folks on the news side acted as if there was nothing the least bit amiss about negotiating this sort of transaction in the public square. I found it awfully disturbing, and it got me thinking about this entire scenario. The United States is essentially moving forward with a multi-trillion program of expenditure on the premise that China will put up the venture capital. I know the answer to "is this wise?" but I wondered at the answer to "is this possible?"
To gain perspective, I interviewed Professor Xiaodong Wu of the University of Miami. Although his field is medical physics, he holds a second doctorate in philosophy and is profoundly engaged in intellectual dialogue with the most prominent thinkers, both in China and in the Chinese expatriate community. He immediately confirmed that this very subject is currently the focus of intense debate.
The most pressing question being bruited among this intelligentsia is the extent of China's fiscal capacity. China is an anomaly in that it has been doing better and better in the marketplace with each passing year, but ninety percent of its citizens have not benefited significantly. Because it is still a poor country in most of its territory, there are limits to the extent of its ability to trade internally, and further limits on its ability to develop the skilled workforce required to bring its economy to levels resembling the industrialized countries.
Since it is also a closed society, with information tightly controlled by the government, we are confronted with an odd scenario unlike what we encounter in Europe or even Japan. Namely, we simply do not know for sure how much money they have. Thus, proceeding on massive projects with them as prime lenders is fraught with the perils native to uncharted waters.
MOST FASCINATING INDEED was the perspective Wu brings to the attitude of China about the United States. Thirty years ago, it was still characterized by hostility and resentment. Now, he says, whatever tension may surface in diplomatic and military situations, the dominant sentiment in China toward the United States is admiration. Furthermore, the Chinese government and its brain trust have concluded a series of studies over some decades and determined that the capitalist economic system of the United States is the most superior organizing approach to finance.
They have particularly noted the resilience of the American model, its capacity to adapt to recessions by regenerating new businesses and refurbishing old ones. This is the element that they find most compelling. Every other approach seems to stub its toe before long and become significantly stalled. The free competitive system of the United States allows new entrepreneurs to create opportunity from diversity.
Thus, Wu fears, if the Chinese government becomes convinced at any point that the Obama approach is choosing socialism over capitalism as a financial system, they will perforce opt out of their cooperative role. Here we have the ultimate irony. In this view, the Chinese are to the right of Obama in the monetary realm, accepting the premises of Reagan over Roosevelt. A crisis is foreseeable in which Obama's radical-left agenda is stopped not by the Chinese stifling our economy to achieve global hegemony, but by their demanding America's fealty to the system it has exported to the world.
Now that would be some press conference, with our Secretary of State being castigated by her Chinese counterpart for her insufficient attentiveness to the whorls of the Laffer Curve, her snoozing through the classes of Milton Friedman.
One last point made by Wu is that China can be trusted to follow through on any explicit agreement. It is a matter of national pride that the country keeps its word. Would they dump our bonds and bring us down if they could cut a better deal with Europe? In theory, yes, over the long term. But if they make a clear agreement, there is no danger of a double-cross.
Which leaves us borrowing from a country that may or may not have money to finance an agenda they may or may not agree with to do things that may or may not be good for America. And we wonder why the markets are riddled with uncertainty?!