Financial Worries Have Implications for US/China Relationship
Shlapentokh, Dmitry, The World and I
The American press has, of course, responded to the present US financial crisis. Most observers--and they present the views of both Obama, his conservative opponents, and, consequently, the majority of Americans--suggest that the "fundamentals" are good, the US economy is basically sound and that just small changes are required to push her ahead.
This sort of view, held by both Democrats and Republicans leaders, their economic advisors, and what seems to be a majority of US economists, was translated into recent actions. The economic stimulus checks, usually a few hundred dollars, quite a paltry sum for the majority of Americans, would insure that the US would not lapse into recession. Obama proceed in the same way on grand scale and pump billions in economy. Still, increasing numbers of observers, even from the most respectable American publications, began to present the US economy in the blackest color. But, in any case, they believe the US economy would follow the usual business cycle and after a certain period of decline would return to its past glory.
An article in the conservative Wall Street Journal, the mouthpiece of the business community, lamented that the US financial system is completely discredited. The equally influential, liberal New York Times--in several articles--sees US finances in deep trouble and points out that the government bail-out of major American banks and companies has increased ever more the enormous debt, worth many trillions, that is held by foreigners.
Still, even here there were no unsolvable problems. The point is that the US is "too big" to fail," e.g., that the collapse of the US financial pyramid would plunge the entire global financial system into an abyss. And for this reason, foreigners, including foreign governments, not only would hold the US dollars/treasury obligations but also even continue to make loans to the US. And they would do this regardless of the actual negative return on their investment due to the continuous decline of the dollar, vis-a-vis the major currencies.
The philosophy of these observers is pretty much that which one could find in the brain of quite a few average Joes, who believe that, upon borrowing a certain amount of cash or making huge credit card debt it is not him but the creditors who should be concerned with his financial health, for in the case of his bankruptcy, the creditors would suffer a great loss. So he believes that the very nature of his relationship with his creditors guarantees a continuous stream of money and he could well proceed with his usual habits. Still, as the recent experience of millions of Americans testifies, not only bankruptcy or other financial troubles led them to the loss of their property, e.g., houses, but their bad credit history had drastically limited their ability to borrow and compelled them to change their lifestyle in the most dramatic way.
The same could be said with certain amendments about the US. The major US creditors, China, for example, could still hold their US dollars and even provide the US with additional cash only on the implicit condition of changing the US geopolitically or, to be precise, the geopolitical-economic behavior, ensuring China's rise. There are several indicators of this process.
One could start with the geopolitics of investment. For many years, the US and Europe elite have expressed their concern with "sovereign funds," the money controlled not so much by private investors but by foreign governments. The concern is that investments of these funds by key companies could increase foreign government control over the US economy. This could ultimately take precedence over purely domestic arrangements. This concern was the major reason why Europeans were quite reluctant to allow Russians to buy some of the strategically important stocks. …