Friday, June 11, 2010

Let's Look At The American Budget Deficit Fiasco As If You Were The Chinese Finance Minister....

Suppose you are Xie Zuran (second from right) and you have the enviable (unenviable?) job as Minister of Finance for the People's Republic of China.

(It is still so odd to see the word "republic' being applied to both the communist government of China and the free representative democracy of the United States at the same time.  Especially when many people think there is more 'free enterprise' going on in China today than in America...mull on that for a moment)

If we were Mr. Zuran, here's what we think we would say to the US Treasury Secretary or President Obama direct to his face about the potential repeal of the Bush Tax Cuts.  It would be the sort of conversation that highlights the hidden, but deadly dangers of getting too over-extended with debt to foreign bond-holders:

"Are you completely out of your mind, Mr. President?

You shouldn't be considering any extension of the Bush Tax Cuts, at all, ever!  Let them expire; you have to, Mr. President!

We, the Chinese, the best friend you Americans have had in the world when it comes to financing your debt since the Dutch from 1776-1789, are now sitting on over $1 trillion in dollar-denominated bonds and financial instruments, including cash.

We have been the largest and most consistent purchaser of your debt offerings over the past decade when your country, for some unknown reason to us, has decided to spend way beyond your means and abandon all known principles of sound financial management.

We thought the US was the World's Greatest Financial Power but what you are doing now is sort of crazy to us, to be honest about it.  We will keep buying your debt and cash instruments....but only as long as we think it will hold its value and we will not suffer financially from doing so.

We implore you to allow all of the Bush Tax Cuts to expire at the end of 2010. In fact, as a precondition for buying more US debt, we are demanding that you do so or else we will be less inclined to buy any more of your debt until and unless you get a handle on your deficit and debt problems.

The most immediate thing you can do that will show us that you are 'serious' about tackling your budget deficits would be to allow all of these Bush Tax Cuts to expire on December 31, 2010.  Go ahead; you desperately need $200-$300 billion of increased tax revenues per year to flow into the coffers of the US Treasury in Washington, DC from here on out and reduce these enormous budget deficits by at least 25% annually. Forever, now it seems.

We really don't care if you raise taxes or cut federal spending to balance your budgets.  What we want, and are demanding you do, is to radically reduce your budget deficits to significantly lessen the risk that the dollar will continue sliding in value.  Have you seen what happened to the euro when the Greek budget disaster erupted?  The euro is diving faster than the cormorants we Chinese use to fish with!

We know that whatever you do, you will always want to buy cheap imports from China for the foreseeable future.  And you will be dependent on our willingness to use the dollars you send to us to pay for cheap underwear to buy back your debt for a long time as well.

So you have got to take us seriously, Mr. President.  Just like Mexico and all of the Latin American countries who have had severe financial crises in the past.  They all had arrogant American 'demands' to 'get their financial house in order' shoved down their throats before any more IMF loans or aid was offered from Washington.

I'll bet you are sorry to see the shoe on the other foot now, huh, Mr. President?

Let the Bush Tax Cuts die.  Completely. In total. Or else!

I am remain your humble and sincere friend. Believe it or not.

I promise.

Xie Zuran"

courtesy of


  1. While I agree with your overall impression of the Chinese government's view of the Obama Admin and Congress - one giant fool leading (or being led by) a pack of smaller fools - from the perspective of a business owner with footprints in many countries around the world, raising taxes will only hurt the "recovery" and jeopardize the Chinese investment. What is needed is SPENDING cuts, real ones, back to at least 2002 levels, before Bush went crazy and before Obama went completely insane.

    Otherwise, very enjoyable post.

  2. thanks for input....and from someone who actually knows what he is talking about because you do business the world over, your comments are most appreciated.

    We all agree on the need for spending cuts...but who is going to do that? The people who spent the money in the first place, i.e. the incumbents? Probably not,....only a new majority of tight-fisted business managers elected to Congress could give us any hope on that score.

    thanks for your comment. I think I was thinking more on the Machiavellian lines of the Chinese finance minister 'now we got them and can tell them what to do'...since the US has been pretty darned sanctimonious over the decades telling other countries to 'straighten up and fly right'

  3. I think the Tea Party tide and Governors like Christie in NJ will drive the push to (proactively) reduce spending. Ultimately, the economic conditions will force it regardless of who is in power.

    There is no question Washington has played an astonishingly poor game with China. After 16 years traveling, living and working there, I cannot believe some of the stoopid mistakes we've made.

    That is not to say China holds all the cards - as George C. Marshall said, "the enemy always has problems of his own of which you are unaware". Had the USA followed a rational course the last decade vis a vis non-defense spending, we would not be having any discussions about Chinese held US debt and currency, much less panicked ones. Their holdings would (rightly) be seen as signs of confidence in the USA economy and currency. Now it is seen as a political move that will be dumped as soon as there is a better option than the dollar.

    As I have said before, if the idiots in Washington would just quit shooting themselves (and us) in the foot, we'd all be fine.

  4. Sorry - thanks for the compliment and the swift reply!

  5. comment anytime....I always learn something from people who actually know what they are talking about.

    or, as W&M/NC State/Arkansas/NY Jets/Minnesota/ND/South Carolina Head Football Coach Lou Holtz always has said, "I never learned anything with my mouth wide open!"

    (although from his ESPN GameDay perch, his mouth does seem to be often an awfully lot of the time!)


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