Saturday, November 27, 2010

China Sends Foreclosure Demands To U.S.

China has sent its latest foreclosure notice to the U.S. by way of a People's Bank of China adviser:

The U.S. has to resolve its “twin deficits” in the government budget and the current account, Xia was quoted as saying. Three ways that may help the U.S. achieve that target include reducing military expenses, selling part of its gold reserves and relaxing some export limits on technology, he said.

These are are more than merely helpful suggestions.  Nothing in superpower affairs is ever so innocent.  Each of those three polite hints will serve to strengthen China's strategic position.  China is putting the U.S. on notice that a gradual transfer of its hegemony is an acceptable alternative to China's sudden exit from the U.S. Treasury market.  China wants to avoid a sudden drop in the value of its Treasuries and is seeking a typically face-saving alternative to the "nuclear option" of a bond market selloff or boycott. 

The U.S. is not likely to take the hint.  The bond market will thus have to force Uncle Sam to pay attention.