China – Our Banker, Now With Leverage To Change U.S. Govt. Policies

After having sold thousands of our best companies to foreign interests in recent years, and having dismantled much of our industrial infrastructure in favor of outsourcing our manufacturing, America has increasingly become dependent on imports to maintain the standard of living it has become accustomed to, but at what cost?

Look at the computer you type on, the pen you write with, the cell phone you carry. These little things add up.

These deficits are expanding. The U.S. government predicts a $1.56 trillion deficit in 2010, or 10.6 per cent of the economy measured by gross domestic product (GDP). The budget deficit will, among other things, fund the wars it fights all over the world. Japan, China and others buy large chunks of this debt in the form of T-bills to collect interest and allow the U.S. to continue its spending spree.

But what if China said no? What if Chinese and U.S. interests diverged in such a fundamental way that it caused China to pull the plug on its vast treasury allocations?

That option is now on the table after recently several high ranking Chinese officials threatened to use the so-called “nuclear option,” the liquidation of their U.S. holdings, to counteract current pressure from U.S. congress over the Yuan. Such liquidation could cause the dollar to plummet in value and threaten to seriously destabilize the American economy.

For all America’s military spending, it is defenseless against this “nuclear” threat.

Presently America does not regulate the amount of debt foreign governments can purchase, allowing countries to accumulate greater and greater amounts of bonds with each passing day. Foreign nations now hold a staggering 44 percent of U.S. debt, a powerful leverage against American interests.

For now this “nuclear” threat is limited to policy regarding China’s currency- but could easily extend to an array of other policy issues in the future.

Imagine if China, or any major loaner nation to the U.S., did not want America to fight in a particular war. These foreign nations could threaten to liquidate their holdings as a sort of ultimate economic leverage to prevent America from taking military action or support domestic needs.

The U.S. government needs this foreign funding to support its billions and billions of national debts that fund wars and other important military and domestic expenses. Without this funding, and barring a monumental tax hike on its citizens, America would be hard pressed to pay for its domestic and military commitments and other objectives.

It is the ultimate loss of sovereignty- a nation unable to do the things that are in its best interest or choose the wars it thinks it needs to fight to protect itself. It is a reflection of the path America is now forced to follow, with production declining, an over-reliance on imports, and towering debts and ever-increasing loans to sustain it.

Left unchecked America’s banker nations could have a veto power on U.S. foreign policy or totally destabilize our economy: Will America wake up before it is too late?