Yellow Peril

by digby

Chris Hayes went to China:

As Barack Obama touched down in China, the American press seemed to settle on a single story line. The president, wrote the New York Times, will be “assuming the role of profligate spender coming to pay his respects to his banker.” And the Wall Street Journal highlighted “China’s Blunt Talk for Obama,” about US economic policy and the “nervousness” expressed by Chinese leaders that “huge U.S. budget deficits will weaken the dollar and slash the value of China’s massive foreign-currency holdings.” The karmic symmetry of this state of affairs makes for an appealing fable. The once mighty United States, which for decades used the IMF to impose its will on the domestic policies of developing countries across the globe, is brought low by its profligacy and forced to beg sufferance from the miserly Chinese. But just a few days here in Shanghai (on a trip sponsored by the China-United States Exchange Association) has convinced me it’s bullshit and the Chinese know it. “There’s an old Chinese saying,” Yang Jiemian, president of the Shanghai Institutes for International Studies, told me. “If you borrow a hundred dollars, you are borrower; if you borrow a million dollars, you are not borrower.” There’s an English version of this, which is a bit zippier–“When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank”–and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars.

He goes on to explain just how co-dependent the two countries are and very astutely answers the biggest question out there. Why in the hell is this country ginning up the yellow peril again?

The answer to that, I think, is politics. It’s increasingly clear that China has replaced the bond market as the nebulous specter that fiscal hawks will use to justify domestic austerity. In the 1990s Bill Clinton was persuaded by Robert Rubin and others that the deficits he inherited required him to abandon any extension of the welfare state, lest interest rates go through the roof and the economy into the tank. He was urged to balance the budget, which he did, prompting James Carville to quip: “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” Of course, we still have a bond market, but the fiscal hawks don’t talk much about it these days. That’s because despite all the borrowing, interest rates remain low. So instead, fiscal hawks have attempted to outsource their browbeating to the Chinese, often referred to as our “biggest creditor,” even though China holds only 22 percent of foreign-held US Treasury securities. (The majority is held domestically.) In June Illinois Republican Mark Kirk bragged during a talk at the Center for Strategic and International Studies that on a recent trip to China he’d told Chinese officials that “the budget numbers that the US government had put forward should not be believed. The Congress is actually gonna spend quite a bit more than what’s in the budget, and the healthcare bill probably being the lead driver of additional spending by the Congress.” This bizarre bit of self-sabotage makes sense only if you recognize that Kirk is hoping that panicking the Chinese will boomerang back to the States and whack Obama’s domestic agenda.

Got nihilism?

Hayes points out that elites of both countries are playing with populist fire by refusing to deal with their respective problems properly and that following the advice of the wrecking crew is exactly the wrong thing to do (as usual.)

Read the whole thing, it’s short. And then send it to Saturday Night Live which inexplicably turned itself into Larry Kudlow’s press flack this week-end.

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