Monday, September 05, 2011

Take a Hint from China: U.S. T-Bonds are Sure to be Safe for Decades

Doubts about the fidelity of United States Federal government debt is all the rage these days. At the center of debates that cover the future state of our collective collection and spending of capital is the way American lawmakers plan to solve our looming super-debt. Simply put, some people are seriously doubting the US' ability to solve its debt crisis in the long-run. If the US were to fail to balance its books, then the once-considered invincible and immortally secure value of the US Treasury Bond, which in essence is an investment in future American success, will disintegrate into just another piece of paper.

But those who should be the most worried about such an event occurring, are the ones who continue to commit actions that only make sense if they believe the US long-term situation is a good one. The Chinese government has not ceased their faithful purchasing of US T-Bonds even during the worst period of the Great Recession, and as we veer near a potential double-dip they still haven't stopped. In fact, China has bought over a trillion dollars worth of T-Bonds since they started doing so when our two countries expanded our relationship with one another in the late 20th century.

The only way China can ever expect to see a benefit to their 1.1 trillion dollar investment in the American government is if the United States continues to prosper for decades. Looking at the maturity rate for the bonds they've purchased there's simply no other way around it. Yet despite official criticism regarding the way American lawmakers have been playing with fiscal fire, China has not shown any indication that they've hit the panic button, or that such a button even exists.

China is no stranger to just about anything when it comes to managing the economy of an empire and international relations. The world's leading power does not invest more than a trillion dollars into a military and economic competitor without reinforced assurances that the transaction functions on the terms that were agreed upon.

What does China see, exactly, that makes them so confident? Maybe it's the two trillion dollars of top-level American corporate and private citizen revenue that gets horded inside banks every year instead of being spent like it should. Perhaps it's the countless tax loopholes for big businesses that have yet to be closed, but could be to net more government capital. Or it could just be the fact that as long as the United States continues to possess the world's most powerful and technologically advanced military China feels like they have a reliable business partner under no immediate threat of default.

And even if our government does default on its debt, for some reason China is certain that the US Treasury will always make good on its monthly coupon payments out for bonds. While this is a little scary to think about, it says enormous things about China's confidence in the American public sector to eventually get done what needs to get done.

So long as the private sector of the United States plays along, everything about our current debt crisis is sure to become a thing of the past. China certainly believes so, and with more than 2,000 years of continual existence, you can count on them to always see the bigger picture.

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