China Getting Nervous, and So Should You!


Now this can’t be good. The Chinese government is warning the U.S. to watch its spending for fear continued haphazard spending by Washington will devalue the Dollar and by association the Chinese investment in U.S. Treasuries. “We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” said China’s premier, Wen Jiabao.

Just to make sure we all understand exactly what this is, this is like your banker calling you up and saying, “Steve, it’s Pete from ABC bank, I’m worried about you making this month’s mortgage payment, maybe you should save some money and not go on vacation next week.”  At first I’m guessing you’d be a little angry wondering where this guy gets off telling you how to spend your money, but then after a minute you’d probably sit down and think, “uh-oh, guess I won’t be getting that new car loan from Pete!”

And that’s really the point.  Every time the government spends money it doesn’t have (and let’s be clear, that’s every day these days), they have to raise/borrow it from somewhere.  The most common source in recent years has been China – this in and of itself might send chills down your spine, but that’s only the beginning.  China is now signaling some concern and that brings into question whether the “window” will be open the next time Ben Bernanke shows up for a loan.  If the Treasury can’t raise the money through selling notes, they have to fall back on the ever popular print more money strategy.  Now I won’t bore you with the economics lesson (and I’m not qualified to teach it) but the print more money approach must eventually lead to inflation.

Bottom line – the current administration and the Congress better listen to their banker and get their financial house in order, or that next “auto loan” may be hard to get.

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