In 1900, the United States was a creditor nation: we loaned money to others, and invested both at home and overseas. We exported far more than we imported, in both raw and finished commodities. And we were on our way to becoming the most powerful nation on earth -- economically, militarily, and morally.
Fast forward 100 years. We are the world's largest debtor nation. We import far more than we export, with China being our largest source of overseas imports. And our entire economy is based on borrowing from other nations, with China being our second largest foreign creditor.
If you'd like to lie awake tonight, ask yourself: what would happen if China declined to buy any U.S. bonds whatsoever at the next bond auction, effectively declining to continue refinancing the national debt? Answer: our economy would collapse, Great Depression-style.
Or, for a less extreme example, ask yourself: what would happen if China unilaterally decided to discourage investment in its own stock market, depressing Chinese stock prices? It would be pretty to think that a slide in the internal stock market of a nominally insular, Communist country would be largely irrelevant to the capitalist West. But the truth is harsher, as demonstrated by today's worldwide slide in stock prices. China's government makes a decision about its own stock market, and our stock market takes a slide. Tomorrow, things will either continue to deteriorate, or China will take steps to reassure Western investors -- but which way things go will mainly be up to China, not to us.
Essayist and poet Wendell Berry, in his excellent collection of essays Sex, Economy, Freedom and Community, wrote this: "If you are dependent on people who do not know you, who control the value of your necessities, you are not free, and you are not safe." Until we can become self-reliant again -- not isolationist, but self-reliant, capable of controlling our own destiny as a nation -- we will remain unfree, and we will remain fundamentally unsafe, no matter how many nukes we possess. And that, in large part, is why free-trade, DLC Democrats are nearly as dangerous to America's well-being as the free-trade, corporatist Republicans they are copying.
UPDATE, MARCH 3: Next-day rise in US indexes notwithstanding, it's not over yet....
UPDATE, MARCH 4: Still not over... Others are acknowledging that China's woes are the world's woes (so is it "protectionist" to want to loosen that connection?)... And as Treasury yields decline, there'll be less incentive for people to buy them (i.e. to finance the continual expansion of the national debt), which means the face yield of G-bonds will need to increase, which will increase the national debt even more (just like your credit card balance will go up if the interest rate rises but you keep just paying minimums), and pressure will increase on our policymakers to eventually allow higher inflation to artificially reduce our debt load in real dollars. You can't take away just one card from a house of cards...
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