China Hates Us -- How Much Longer Will They Back Our Debt-Ridden Economy?

By Scott Thill, AlterNet. Posted April 3, 2009.

Agreed to by Russia, Zhou Xiaochuan's proposal is but the latest salvo in China's campaign to break the dollar's chokehold on global economics, as well as a brilliant PR maneuver to prime the pump for the G20 meet. The issue kicked up enough dust that President Barack Obama had to publicly rebuke it during a televised prime-time press conference.

Whatever its original impetus, the move has paid immediate returns for the Chinese, if only in the form of an increase in mainstream discussion about the dollar's continuing relevance. It's a worthy subject for a country like China, which is appears bent on reshaping the new world monetary order.

It's also a veiled warning to those who do business with the export powerhouse, which includes most of America's allies and enemies. It's a serious geopolitical concern for Washington when many of those countries begin voicing their own concerns about the dollar right before they all meet at a world conference on the econopocalypse.

"Normally we are very polite with each other," Brazil's President Luiz Inacio "Lula" da Silva explained during a press conference with U.K. Prime Minister Gordon Brown. "But this meeting in London, it has to be a little bit spicy, [have] a little bit of heat." Lula said this after explaining that we got into this mess because of the "irrational behavior of people that are white, blue-eyed, [who] before the crisis looked like they knew everything about economics" but have since "demonstrated that they don't know anything about economics."

The heavy rhetorical fire is aimed with precision. China, Russia and Brazil -- who hold much of our conventional labor and energy futures in their hands -- know good and well that beggars can't be choosers. They know that if we want their help to fund our gluttonous debt and economic machinations, we are probably now going to have to pay for it, in lost wealth and lost face.

The volley is also a clever invitation to Europe, which has consistently asked China to help fund the IMF, to join in on the dollar dogpile.

But even if Zhou's proposal comes to nothing, there's reason to believe that the economies of America and China have already begun to "decouple."

"The global currency system, being detached from a gold standard, maintained its vital credibility strictly on the faith that a particular nation was capable of producing wealth," explains author and columnist James Kunstler, who predicted the current economic depression in books like The Long Emergency. "If you can't produce wealth, or surplus capital, then you can't service debt. So the system of Chinese production and American consumption has reached its terminal limit.

"A reality-based view of the relationship must admit that China knew what it was doing when it bought our Treasury debt to support our ability to buy their products. And America must have known what it was doing when it mortgaged its future. Either that, or neither nation, or its leadership, knew what the hell it was doing, which is a sobering thought."

Obama certainly sobered up after Wen complained about the safety of his nation's American assets. "Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States," Obama announced after a White House meeting with Brazil's da Silva, whose country may be the only one left standing after the smoke clears.

How did Lula manage it? Simple: Solid financial regulation and healthy wealth distribution. (Well, that and the kind of oil deposits that elicit a reported invitation to join OPEC.)

Brazil's leadership transitioning to a more regional economic model is catching on throughout the world and could cause massive headaches for the United States, should China decide to implement its own version of it more fully. In fact, it might already be time to break out the ibuprofen.

See more stories tagged with: china, economy, dollar, deficits, financial crisis, reserve currency, yuan

Scott Thill runs the online mag Morphizm. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.

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