China Reads the Roadmap

In an earlier post, I wrote about the looming threat of inflation to the US Economy (see:  A Storm on the Horizon ).   I read this morning that Ambrose Evans-Pritchard of the London Telegraph, says China is expressing significant alarm of the continued deficit spending of our federal government noting that significant inflation is inevitable. 

Cheng Siwei, a leading Chinese economic spokesman was very critical of Federal Reserve Chairman Ben Bernanke’s monetary policies stating, “If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard.”  He went on to say that China is so concerned that they have started to “diversify” their holdings of roughly $700 billion of U.S. foreign-exchange reserves, opting to sell their holdings off and purchase gold as a hedge to the dollar “falling hard”.

This is not good news for the U.S. economy.  China is the largest purchaser of our federal debt.  For years they have been financing our government’s addiction to deficit spending.  China is signaling very clearly that they will be less and less likely to continue this practice because of concern of the credit worthiness of our nation.  If the Chinese credit pool dries up, then the U.S. government will be left with a very limited number of choices:  raise taxes significantly on everyone, print more money, and/or drastically cut government spending.

While Pres. Obama sends Vice-Pres. Biden around the country to tell the American people that the “stimulus is working just as we planned”, I’m left to wonder what the heck their plan is anyway.  As of yesterday:

• The value of the dollar has fallen to the point where global monetary investors are pulling money out of U.S. Monetary funds and placing their investments with emerging markets like Brazil.
• Unemployment deepened with the announcement this week that we are now at 9.7% for the nation.  When you factor in those who have given up on looking for jobs or who can only get part-time work to replace their lost full-time job, we are at 16% unemployment/underemployment.
• Trillion dollar deficit spending has become the new billion dollar deficit spending
• We now learn that taxpayers will most likely never recover $80 billion of the automotive bail-out
• There appears to be no end to the Obama administration’s willingness to spend then tax.

Mr. Vice-President – if all is going “according to plan”, then where is your plan taking us?  China seems to know, do you?