Chinese Prime Minister Wen Jiabao rattled the Obama administration late last week. He said China is concerned about its loans to the United States and asked the U.S. government to preserve its good credit standing and guarantee the security of these loans.
The comments by the Chinese leader sent U.S. treasury bills lower because it is clear to many observers that President Barack Obama's spendthrift and irresponsible policy will be costly for the U.S. economy and the entire world.
Obama quickly sought to restore faith. The U.S. budget deficit, he said, will shrink 50 percent in four years (doubtful). The White House spokesman added that there is no safer investment in the world than the United States. Still, the Chinese are not calm.
During the past decade China has paid for the shopping sprees and deficits of American consumers and their government. Every morning the Chinese went to work in the rice paddies and factories and saved a large portion of their incomes. The savings were directed by the Chinese government to the American money markets, where treasury bills issued by the government were bought, as were bonds issued by banks, investment houses and other financial institutions once considered to be extremely safe. This way the Chinese worker financed the home, car, bonuses and good life of Americans. Then came the crash.
At first, the Chinese lost a big chunk of the money invested in banks and investment houses on Wall Street. Now they are afraid of a much worse scenario - that the price of U.S. T-bills will collapse, and the value of the American debt the Chinese hold will fall hard. China is the largest lender in the world to the U.S. government. The Chinese hold $700 billion worth of T-bills, which is 3.5 times more than Israel's annual GDP.
The Chinese concerns stem from Obama's generous policies. The U.S. president has been presenting a list of contradictory and unclear economic programs worth about $2 trillion, a frightening and unprecedented record in spending.
The many programs failed to restore calm to the American markets; the opposite is true. The rate of dismissals has risen to 650,000 per month, and unemployment has reached 8.1 percent. During the last four months 2.3 million Americans have lost their jobs, and there are new concerns that unemployment will reach 10 percent this year. Wall Street has also voted no confidence in Obama's policies. Stocks have dropped sharply since his election, the unavailability of credit is getting worse, and the big banks and insurance companies are at risk of collapse.
Today it is clear that Obama has used the financial crisis as a cover for his political agenda. Had he been elected in 2006, a year of plenty and growth, he would have carried out the same programs he is now targeting. In 2006 he would have said it is not right for only Wall Street to benefit from abundance, so we have to intervene in the economy significantly. Now he is saying the crisis obliges him to intervene in the economy.
Obama believes he is creating new jobs, but this is not true. Government does not make new jobs; government needs to create an atmosphere for private entrepreneurs to set up factories and businesses. The fact is, since Obama presented his programs, unemployment has increased.
The president is not only thinking about the short term. He is pouring hundreds of billions into welfare, the environment, renewable energy, cheap mortgages, aid to workers, subsidies to factories, national health insurance and budgets for education - all from the federal budget. This will require a tax rise for the middle class, not just the wealthy.
Obama is an ideologue. He wants to alter the fundamental values of American society, to move from a capitalist market economy to a social-democratic economy. Instead of a country where the budget is small and taxes are low, he wants an enormous administration that manages a large budget, interferes in details and clashes with free enterprise.
It is this socialist dream that appears to be worrying the Chinese prime minister. The world has turned upside down.
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