"Your money is worthless here..."

I know reading bits and pieces of financial news is not what most people want to hear, especially in these times where the government, our government, routinely talks of spending trillions of dollars as if anyone I know could reasonably comprehend what a trillion is.

Recent financial news have focused on the cost of the government doing what ever the heck they are doing to health care, and  it usually is associated with the trillion word.

We all know or should by now that our national economy is (to me) based on promises and promissory notes, with our being the biggest debtor in the world…and the biggest holder of that debt was China...

Yeah, communist/socialist/ whatever hodgepodge government system they have owns T-bill, which our esteemed Treasury Secretary (sorry, cynicism here) last summer assured the Chinese were sound solid investments, and would they kindly buy more…

In December the Chinese spoke with their wallets,

“China sells $34.2bn of US treasury bonds”

“Analysts fear Beijing's move may suggest a loss of faith in American government's economic policy

Premier Wen Jiabao told reporters last year: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

America must sell an unprecedented volume of treasuries in the coming years to finance its record deficit, and pay the cost of bailing out Wall Street and kick-starting the economy with a $900bn stimulus package. Any evidence that foreign investors are beginning to doubt Obama's promises to bring the public finances under control will spread alarm in Washington.”

Today the United States-China Economic and Security Review Commission  met, and the discussion was something most people are likely unaware of…

The discussion states “…a reasonable working assumption is that China owns close to $1 trillion of United States Treasury securities. That would be nearly half of the stock of Treasuries thought to be in the hands of “foreign official” owners...”

“If China were to end its intervention, the renminbi would appreciate substantially, likely in the region of 20 to 40 percent.  The primary effect would therefore be an effective depreciation of the American dollar against the Chinese renminbi…”

So our government would like the Chinese to allow their currency to appreciate, which simultaneously (since they own so much of our debt) would cause the dollar to depreciate “…in the neighborhood of 15-20%”

As a hedge on the balance of trade that might be good, but if Chinese goods suddenly jump in cost 20% because of our currency dropping, and at the same time their money goes up, what’s that do to the price of all that Chinese “stuff” we import?

I think there might be an unintended ripple effect here, which would in fact not help but hurt our economy.

“Any evidence that foreign investors are beginning to doubt Obama's promises to bring the public finances under control will spread alarm in Washington.”

Washington is undoubtedly the last place alarm will spread…it’s the source of this insanity