Top US Treasury holders especially China are increasingly vocal about their trepidation as the Federal Reserve cranks the money printing machines to full throttle. Cheng Siwei, head of China’s green energy program and former vice-chairman of the Standing Committee, recently said the following:
“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies.”
This is nothing new for people who are keeping tabs on the Federal Reserve, and economists in general. The solution to our economic situation was simple, simply create more money out of thin air and give it to those most in need. The very idea goes against the foundations of a free market society but according to the leaders of our country, the treasury department, and their masters when it comes to monetary affairs (the Federal Reserve board) it was something that must be done.
A measure put forward by Ron Paul to “audit the Fed” passed the House but has slowed down and will most likely be killed off by the Senate under threat of veto by the President. Local solutions to uncontrolled spending and increases in the size and scope of the government are reaching a point of futility but perhaps China will be more persuasive as the largest holder of US debt. In fact, every household owes China (taking only into consideration Chinese holdings of US Treasuries) over $6,000. Add on to that the gigantic amount of trade coming in and out of China, and you have the most important “concerned citizen” to be considered in the debate.
Cheng Siwei succinctly stated:
“The US spends tomorrow’s money today,” he said. “We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.”
The funny thing about the situation is that the government is encouraging the return of the habit, as new programs encouraging people to spend their loose or non-existent money on items ranging from new homes to new ‘fuel-efficient’ cars in programs ranging from home buyers assistance and tax breaks to the novel “Cash for Clunkers” program which will be scoffed at by historians as the most ludicrous pilfering of the taxpayer’s wallet in recorded history.