Thursday, July 30, 2009

CCP Uses Washington as a Scapegoat

The latest round of Sino-American talks came to an end with yet another expression of "concern at the record American budget deficit"(Bloomberg). In fact, the most consistent line Washington has heard from Zhongnanhai is criticism of the Administration's spending and borrowing. Most Americans are themselves too worried about the president mortgaging the future to raise much of a stink about Beijing's nagging. Still, the Chinese Communist Party is not going after our record deficits to get us to see the light, but rather to pull the wool over the eyes of their own people.

That the Communist regime now holds more American debt than anyone or anything on earth has given them a perception of economic power. Granted, there isn't much reality behind that perception, but that will take some time to sink in over here. What is important here is what Beijing's carping reveals: deep concern about their own economy, and an inability to fix it.

The latest economic figures out of Beijing trumpeted 7.9% GDP growth in the second quarter. However, given the cadres' penchant for phony statistics, the actual growth number could be as low as 6% - well below population growth. In other words, the average victim of the CCP is continues to grow poorer. This despite a half-trillion-dollar "stimulus."

Meanwhile, the already creeky banking sector continued to dig itself a deeper hole, with wave after wave of reckless loans that have brought back the dreaded B-word ("bubble"). The regime has promised to use "market tools" (Bloomberg) to slow down the lending spree - without explaining to anyone just what it means by that.

So, with the economy not recovering to the extent required, corruption still out of control, and several banks sure to end up drowning in bad loans in the near future, the regime needs someone to blame - and up steps the Obama Administration. To be clear, I am in no way endorsing the reckless spending of the president. The consequences of trillion-dollar-deficits (the entire federal budget was less than a trillion dollars just twenty-five years ago) are obvious: high inflation, a devalued dollar, and a crippling effect on business investment. That's what makes it so easy for the cadres to hide behind America's mistakes.

If things continue to get worse in Communist China, look for the cadres to make more threats about dumping American bonds, while blaming the falling value of said bonds for the regime's own failures. Unfortunately, too many critics of the Administration will seize upon the cadres' smoke screen as yet another consequence of the president's refusal to slow down the spending train. This is especially true regarding the Communist banks, who will scream bloody murder about the loss of value in American assets while hoping no one notices the domestic-default tsunami.

In fact, this entire ruse is yet one more reason Washington should get its fiscal house in order. Without this crutch, Beijing will have no explanation for the continuing economic downturn, and more of their victims will rise up to take their country back. Instead, the regime could very well succeed (and certainly will attempt) to lay blame for all of their economic difficulties at the feet of the president. Foreign investors (who should know better, but that's for another day) will hear stories about worthwhile projects withering on the vine due to weakened Communist banks and those spendthrift Americans, and odds are they'll believe them. The cadres may very dupe the foreigners out of millions to billions of new dollars to make up for the mythical investment gap, giving the regime yet another vein of money siphon off for party members.

Contrary to what the Chinese Communist Party would like the world to believe, they are in a very weak position. Their economic policies are causing more problems while leaving unsolved the ones that led to the policies in the first place. However, so long as the United States continues to spend money like it grows on trees, the cadres will have the cover story they desperately need to survive. Once again, like nearly every other tyrant on the planet, they will find their survival in whipping up anti-American hatred and blaming us for things we did not do.

No comments: