Time China played true creditor‘s role

Time China played true creditor’s role


Song Hongbing , author of 《currency war》


The key purpose of all wars is to plunder wealth. Compared with traditional wars, a currency war seems more “civilized” because it is wealth-plundering without bloodshed.

By virtue of being the most developed country and its currency being the world’s monetary reserve, the United States occupies high ground in the global financial market. That gives it the advantage to start a currency war without suffering much loss. The only way to stop a war, therefore, is to make the US realize that the losses it would incur by starting a currency war will far outstrip the gains. And the best way of doing that is to make other countries stick together.

But the US has used the differing orientations of other countries to ride over them one by one.

At the World Knowledge Forum in Seoul, South Korea, on Oct 13, 2010, Nobel Prize-winning economist Paul R. Krugman and Harvard University’s Niall Ferguson initiated a debate on “whether or not the US Treasury bond market can withstand China’s selling”. Ferguson said the aim of the second round of the Federal Reserve’s (Fed) currency printing plan is monetization of debt on a much larger scale, maybe up to $1 trillion. But the real worry is that investors in US Treasury bonds may lose confidence in national debt and start selling them.

Krugman, on the hand, said the aim of the plan is to force those saving for the future to consume more in the present to stimulate economic recovery, and those who don’t do so will see the erosion of their wealth.

The financial debt is not a problem for the US, Krugman said. The US is not worried whether China will sell the US Treasury bonds it holds, for the Fed can buy them back. Ferguson, however, expressed concern over the possible selling of US Treasury bonds.

Who is right, Krugman or Ferguson? And why is the US implementing a second round of quantitative easing monetary policy when it knows it will hurt the global foreign exchange market?

The main reason is that the US’ credit expansion stopped. Since the global financial crisis broke out, a loss of $13 trillion for the heavily indebted US consumers and enterprises, and the decline in real income because of the about 10 percent unemployment rate prompted the government to stimulate savings, reduce consumption and repay debts. In 2009 alone, the debts of the US private sector reached $1.8 trillion.

If we assume the US economy to be a huge water mill, its credit expansion is the flow of water. Once the flow of water stops or even slows down, the water mill, that is the economy, will stop moving.

Once the private sector’s credit expansion stopped, panic spread among US economists, including Fed Chairman Ben Bernanke, who had studied the Great Depression of the 1930s minutely and was determined not to let the “horrible” deflation recur. Bernanke has always believed that on the slightest sign of deflation the Fed has to “borrow, print and spend money” or even throw it from helicopters to stimulate consumption.

After a credit crunch hit the US, the federal and local governments’ liabilities began soaring, reaching $1.8 trillion. Why? Because the US government borrowed, printed and spent money to prevent the national economy from shrinking.

Most of the government’s credit expansion measures have not been able to boost the country’s economic recovery, and government debts have failed to effectively restart the private sector’s credit expansion. And that’s the reason why the Fed has decided on the second round of its money printing plan.

During the Fed’s debt monetization process, the economy will get another injection for credit expansion. This time, it is Treasury bonds that will probably go through extensive monetization.

It seems Krugman is closer to the truth. Since the Fed is determined to print $1 trillion to buy back its Treasury bonds, the US’ bond market will not suffer much if China indeed sells some of the bonds it holds. But Ferguson’s statement reflects the situation in the long run: About half of the Treasury bonds’ financing is dependent on overseas investment.

As one of the biggest buyers of the bonds and with almost one-third of world’s foreign exchange reserves, China has the capital strength and potential energy to influence investment in US bonds. In emergency situations, its actions, or even suggestions, could cause a chain reaction leading to a disaster in the bond market.

By June 2009, the US federal government’s total liabilities had crossed $13 trillion. Treasury bonds add up to 90 percent of the country’s GDP, and if they increase to 150 percent the US would face hyperinflation. A US Treasury Department report submitted to Congress suggested that by 2015, the value of Treasury bonds would increase to $19.6 trillion.

If the US wants to increase its Treasury bonds’ value by $6.6 trillion in the next five years, about half the money for that has to come from foreign investors. And a substantial percentage of that has to come from China, which already holds one-third of the world’s foreign exchange reserves.

So, even if China does not sell the Treasury bonds it holds but stops buying more, the Fed has to order a third or even fourth round of money-printing. The second round of the Fed’s money printing plan has already sent shock waves through the global foreign exchange market and created currency wars among some countries, so people can imagine what the situation would be like if the Fed decided to print more money. If that were to happen would any country dare to hold US dollar assets?

There is a reverse relationship of creditor and debtor between China and the US: The biggest debtor lists a series of strict requirements for its biggest creditor and threatens it with penalties.

It is the lack of will to use its power, rather than not having enough power that has led the creditor into a passive position. But the debtor does not realize that. Maybe this is the time for the creditor to use its power.

The author has a book, Currency War, to his credit.


宋鸿兵 translated by Alex,ccjk.com


美国凭借着领衔发达国家的地位和其通货成为世界货币储备的优势,占领着全球金融市场的制高点。 所有这些使得美国要发动一场货币战争就易如反掌。 因此,要阻止这场战争的唯一途径就是要让美国认识到,发动货币战争将让它远远得不偿失。 而实现这点的最好办法就是让美国以外所有国家团结起来。但美国已经用不同的方法将这些国家各个击破。

在2010年10月13日韩国汉城举行的世界知识论坛上,诺贝尔经济学奖获得者保罗·克鲁格曼(Paul R. Krugman)和哈佛大学尼尔·弗格森(Niall Ferguson)围绕“美国债券市场能否承受中国的抛售”展开了一场辩论。弗格森指出,美联储第二轮货币发行计划的目标是更大规模的债务货币化,可能达到1万亿。但真正令人担心的是美债持有者会对这些债券失去信心继而开始抛售。另一方面,克鲁格曼则说该计划是为迫使那些储蓄者现在开始更多的消费以刺激经济恢复,若不消费就等着自己的财富贬值。他还说,金融债务不止是美国一个人的事。美国也并不担心中国是否会将手中的美国国债抛出,因为美联储能再买回来。然而弗格森却对可能发生的美债大甩卖表示忧虑。

谁才是正确的呢,克鲁格曼还是弗格森?为什么在明知会损害全球外汇市场的情况下美国仍然要执行它的第二轮量化宽松政策?主要原因是美国的信用扩张停止了。自从全球金融危机爆发以来,债台高筑的美国消费者和企业损失将近13万亿美元,失业率约10% 造成实际收入的减少促使美国政府鼓励储蓄、减少消费以及偿还债务。单2009一年,美国私营机构的债务就高达1.8 万亿。

如果我们把美国经济比喻成大型水磨坊,其信贷扩张就是水流。 一旦水流减慢或停止,水磨坊,即经济将停止运转。一旦私营机构信贷扩张停止,恐慌将笼罩美国经济学家,包括仔细研究过1930s 大衰退的美联储主席本·伯南克,已经下决心不让“恐怖的”通货紧缩再度降临。伯南克一直认为如果出现通货紧缩的丝毫迹象,美联储就不得不“借贷、印钞、花钱”或干脆用直升机天女散钱以刺激消费。信贷紧缩袭击美国后,联邦和地方政府的负债开始飙升,直达1.8 万亿美元。为何? 因为联邦政府借贷也好,印钱花钱也好,都是为了防止国家经济萎缩。


貌似克鲁格曼说的更正确。因为美联储决定发一万亿美元购回国债,所以就算中国抛售其所持部分债券,美国债券市场也不会受多大影响。但弗格森的声明反映了长期的情形: 差不多一半的国债融资依赖海外资本认购。作为美国国债的最大买家以及持有全世界将近三分之一的外汇储备,中国具备影响美国债券市场的资本实力和潜能。在紧急情况下,它的举措,甚至建议都可能导致连锁反应,对债券市场造成灾难性影响。





本文作者著有一书以兹详解,《货币战争》(currency war)。

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