They Have Us by the Gonads ?

LNR believes that the so-called and unqualified self-declaring economists in the media have it just the OPPOSITE. It's the USA that has a certain large Asian country by the "gonads" as it were.

The mainstream media wishes to extoll the vulnerability and control that the big Asian country has with its ownership of approximately ONE trillion of US debt- in T-bills. LNR has already explained the various reasons why that particular Asian country would NOT exercise its power to "dump" those T-bills- mainly because it would devalue the very debt they are trying to recover- dumping T-bills on that scale would turn the value of their debt to near zero. But, aside from the economic reality- that dumping that debt would hurt the Asian country more than America, the huge element of this "economic" theoretical debate is how easily America could retaliate. The economic counter-weapon that America has is MUCH more relevant to that Asian country than T-bills are to America. America's first counter-attack would be to slap a 300% tariff on the goods of that Asian country. America purchases over 372 billion USD of that Asian countries goods, which represents a whopping 9% of that Asian country's GNP and 20% of all its exports. Whereas, the one trillion of T-bills they hold of America represents only about 6.8% of America's GNP. Who has who by the gonads ? Let's also recognize the value of each of these potential financial weapons- the T-bills, this is not an insurmountable problem- with raising of rates there would be plenty of other foreign and domestic buyers. Also recognize that the 1 trillion in debt holdings has taken years to accumulate, whereas halting purchases of that Asian country's goods is valued on a "yearly" basis. This means that the loss of American purchases from that Asian country (imports) would amount to several trillion dollars lost to the big Asian country over just a few years- NOT an insurmountable problem- it would cause utter financial chaos- with tens of millions more unemployed and THE major loss of their foreign currency earnings.

The T-bill debt held by that Asian country is NOT a linchpin in the America economy- why ? Because the amount is small and the most important fact- it's denominated in the US dollar !! We can print all the legal tender we need in an emergency such as we face right now, it's simply absurd to think of the T-bill debt held by that Asian country is given such attention, when you have over 9.8 trillion dollars in stocks of money and quasi money, another 2 trillion under tarp, 19 trillion in domestic credit and 20 trillion in the US stock markets - aside from savings, retirements, home equities, etc, etc, that right there is over 51 trillion dollars available. How does the media continue to make a mere 1 trillion in t-bills owed to that large Asian country such a CONTROLLING threat to the American economy. .... its not a threat. ... it's just another old story being rehashed by incompetent journalists impersonating economists.

The T-bills held by the large Asian country is simply American money come home. These stories of foreigners holding American dollars or debt is not new. If you recall during the 1970's it was the threat that Saudi Arabia and other "Arab" nations had against America with all the petro-dollars gained by huge oil imports by America- in turn- ofcourse, paying for those oil purchases with American dollars. Where did those Arab countries put their money before they began massive infrastructure development projects at home? America- those petro-dollars came back to America in the form of investments and real estate purchases. At the time, the media was all ablaze at the "threat" of all those dollars being spent "buying up" America. That America would have to realign itself against Israel and in favor of the Arab nations because of the so-called "strangle-hold" the Arab nations had with its petro-dollars. .... of course- it never came to pass, because then- as now, the amount was actually not significant to the overall American economy and stock of money and credit and it could not be used as a weapon without hurting the aggressor more than the intended victim.

The second wave came with the Japanese as you may recall. As America imported much more than it exported to Japan, the Japanese also built up a huge amount of American dollars it held as reserves and turned to invest in America. If one is old enough to remember, the media - Time magazine, etc, was inundated with Japan as the NEW Rising Sun, soon to eclipse America- America's time was passed, Japanese money was buying up Rockefeller Center in New York, soon Japan would OWN America !
... it never came to pass. Even in those heady days of the 1980's Japan was never more than 3rd on the list of the biggest investors in America, behind Britain and Holland. It was a myth that America was going to be bought up, or controlled by Japanese money. And again, that money was NOT Japanese, it was "trade surplus" American dollars which were making its way back to America.

Now, the third wave- the same old story being hashed up about the t-bill debt held by that certain Asian country. If you look at the analysis, it seems all the great world economic powers know where to invest when they become rich- IN AMERICA ! The T-bill debt represents a vote of confidence in the American economy- it shows that when you hold a surplus of America dollars- where should you invest it ? Of course, as always, back into the American economy. And, those t-bills represent "AMERICAN" money coming home, NOT money produced by some other economy or country.