China disagrees with US stimulus

Here’s a bit of an update on the G20 meeting.  It appears that China is getting serious about the US economy, because they want to eventually get the money back that they’ve loaned us.

According to a story on

Chinese Premier Wen Jiabao called on the United States to remain “a credible nation” and not weaken the U.S. dollar with endless government spending on bailouts and stimulus packages.

China gets it.  The US doesn’t.  Government spending – when the government doesn’t have money to spend – causes the currency to weaken relative to other currencies.  (Side note – it doesn’t not cause inflation.  Only increases in the money supply can do that.  But of course we’re doing that too…)

Here’s what Wen said:  “Of course, we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” Wen said at a news conference Friday after the closing of China’s annual legislative session.

The story goes on to give a little background by saying Chinese investment in U.S. Treasuries for years has helped finance U.S. budget deficits, keep interest rates low and buoy the dollar. It is all the more important as the U.S. takes on a deficit in excess of $1 trillion to fight its recession.

As I’ve said many times before, if China doesn’t loan us money, the US is quickly screwed.  Of course if China does loan us money, we’re still screwed – but the ultimate collapse will be delayed.

China appears to fear that overspending on stimulus by the United States could ignite inflation and send interest rates climbing.

It doesn’t look like Chinese Premier Wen believes in Keynesian policies.  At least one member of the G20 is not lacking in common sense.  Isn’t it ironic that a communist country understands economics better than we do?


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