China Wants Us to be Credible

It was with amazement that I read of China premier Wen Jiabao's wish for the US to remain "a credible country."

Wen was expressing his fears of a weaker dollar, which would diminish the value of China's trillion-dollar-plus holding in US treasury bonds, and multi-trillion-dollar overall investment in Uncle Sam.

The translator's use of the word "credible" no doubt carries the very specific meaning of the US regaining and remaining credit-worthy, to keep the dollar attractive and strong. But I have to say the use of this word must surely sting most of us here in the US.

For any serious country in the world to doubt that the US can remain "credible" is something shocks anyone who remembers an era when the US was considered to be "the good guys." Now we are not only not the guys in the white hats, but we have an enormous nation with whom we are co-dependent worrying about whether we are "credible" ? Indeed.

The country famously lost credibility during the Vietnam War era, a time when innumerable other foreign policy abuses came to light and three consecutive presidents were wrenched from office--by assassination, a catastrophic popularity drop, and threat of impeachment, respectively.

The US slowly regained credibility in the intervening decades, a high point being the fall of the Berlin wall and dissolution of the Soviet Union, but has now become a risible facsimile of the "world's only superpower." The reasons for this are complex, in my view, and I will not take any political stance here.

But I do note the irony in having China--a country that is well-known for a sophisticated strategy that weakens its currency--fret about the US weakening the dollar.

Wait, maybe it's not ironic. China needs to keep its currency weak so that it can continue to stoke the flames of its house-on-fire manufacturing base growth rate. Should the greenback start to weaken again, China's leaders can envision a spiral in which their investments go poof along with their manufacturing base.

So premier Wen's concerns are real, concrete, and credible. But currency markets are notorious for their unpredictibility. After all, the dollar's new-found strength of last summer played a role in bursting the oil-price bubble, and it was the oil-price bubble that played a huge role in bursting the US housing bubble, which in turn killed the stock market, which in turn drove the price of oil down further.

Meanwhile, the dollar stayed strong. Now that we may be glimpsing the early spring days of a recovery, will the dollar ironically start to weaken, and thereby cause China to lose faith in US investments? If so, the recent/current recession will just be the overture to the Wagnerian opera.

Eoww, too much thinking, I need to lie down for awhile...