Little League

Today I am shedding some "lyte" on trust.  Namely, the fact that China no longer trusts us to lead the world's economy.

Some of you may ask, "So what? Who cares what China thinks? "  Well, we should because China is our banker.  They own us and continue to own more of us everyday.  China, along with Japan to a lesser extent, buys our debt.  Our economic boom?  Financed by China.  Our economic recovery?  Financed by China.  If they stop buying our debt, we are screwed.  Luckily, so would China because all the bonds and T-Bills they have already purchased would be worthless.  So we are in a symbiotic  economic relationship with a (gasp!) communist country with a lousy record on human rights.  And we were worried about socialism.

So China is getting nervous.  Our financial shenanigans of the past eight years have shown that there were no grown-ups in the room.  The economic free fall has worried them further.  And the spending spree our government is forced to do now to turn the economy around is worrying our bankers big time.  Now there is an essay out by Zhou Xiochuan, the governor of China's central bank, that suggests that the dollar should no longer be the world's standard currency for financial transactions.  

This essay comes out before the meeting of the G20 and it is China's attempt to start flexing some serious muscle at our expense.  We can't argue their logic.  Yes, we did totally deregulate our financial markets.  Yes, we did keep our interest rates artificially low for too long, encouraging more and more borrowing.  Yes, we come up with exotic investments like collateralized debt obligations and credit default swaps that made a lot of money out of nothing.  Can we blame them for questioning the wisdom of continuing to reward our bad behavior?  Should we be surprised that maybe the world doesn't appreciate it when they have to suffer because of our lack of self-control and foresight?

I doubt that the dollar will be taken out of commission anytime soon.  But this should act as wake-up call that our financial decisions now have world-wide repercussions.  And the world just might get tired of our game playing and not only will we no longer be the world champions, we might be sent down to the minors.