"Too Big To Fail"

The News About China Simplified

Posted on Sunday, June 7, 2009

The Chinese don’t consume as much stuff as we do. So they produce it and send it here (meaning they export to us). We buy it, thus giving them our dollars. Rather than invest all of our dollars we pay them for their stuff in their own country, they invest the money in our Treasuries, making the Chinese our largest lender. This is why Tim Geithner was so concerned about making the Chinese comfortable with our economy on his recent visit to China. If they decide not to buy our Treasuries or decide the investment is riskier then before, they can demand a higher rate of return (the relationship between investment riskiness and rate of return is explored in detail in the book "Foreclosure Nation") which will cost us all. And at the moment, as much as we all hate to admit it, they should be just a tad concerned about their investments in the U.S.

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Of course, they can begin to pour the money back into the U.S., buying commercial buildings, homes, and whole companies. In fact this may be the only chance of re-inflating the U.S. economy. The amount of Chinese money combined with U.S. dollars in the Middle East OPEC nations is huge, coming from our buying of goods from China and oil from the middle east. American land, buildings and homes are now at almost "fire-sale prices". There will not be another buying opportunity like this for a very long time. The U.S. consumer simply cannot find access to the liquidity needed to buy these properties, becaus the U.S. banks are essentially on lockdown. The question now is how long the banks will essentially lock the American consumer and business community out of buying property in their own nation and opening up the opportunity for other nations such as China to buy up the deeply discounted property. An example: No firm, hedge fund or investment group could afford to buy Chrysler in the U.S., yet Fiat of Italy steps right up and buys a huge share of them. Where does Fiat's money come from? Are they still selling cars in such a big way in Europe? What does that say about the collapse of the automobile market? Is it only U.S. firms that don't know how to build cars, or is there something deeply wrong with U.S. financial structure that makes it easier for outside investors to raise cash and buy American that it is for American to do?

Roger Conner Jr 6/16/2009

Wow. This is a great explanation. I keep hearing about China but had no idea how the relation worked. This is scary.

SarahAnn in Coconut Creek 6/7/2009
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