posted on Mar, 2 2009 @ 02:48 PM
It's silly to discuss this without specifying what debts are supposedly being collatalized with "all US property".
Chinese money has entered the US in two main ways: as purchases of US Govt debt (like T-Bills), and as private sector investments and loans (many of
those complex derivatives, including the toxic assests, are held by Chinese owners).
Chinese owners of T-bills get the same deal as US, European, or Peruvian T-bill owners - there is a promised rate of return. There's not way that
international money flowing from China (MOSTLY FROM PRIVATE CHINESE sources, not the Chinese governmen) to US treasury bills is getting some sort of
extra collateral that nobody else gets.
Chinese money that is invested in a business (eg: stock or venture capital) or loans (eg: mortagages) in the US likewise gets the same deal as anybody
else's money. They can potentially foreclose on any asset which is specified as collateral in the contract (eg: business assets, or a home) -
This whole urban myth is based on some cartoonish concept that the Chinese *government* has a special unique relationship with the US government, and
that the "debt" is all government to government, outside the normal channels of T-Bill auctions to all comers.
Yes, Chinese investers could demand some special extra collateral before buying T-Bills, and refuse to buy the notes. Here's how that would work -
when the bills are up for sale at autcion (which sets the interest rate), they could choose not to bid, and let investors from the US, Europe and
other nations bid. If there are fewer eager buyers, the interest rates would be bid up, which would attract other buyers. If there are not enough
bidders at any interest rate, the US government would fall short of new capital. At that point the US government could hypothetically consider
sweetening the deal with some kind of additional collateral - most likely existing federal property, offered to ALL T-bill buyers, not just those
investors who happen to live within the borders of the PRC. It would be stupid to give one group a special deal, while turning down the rest of the
world who might underbid Chinese bidders, if given access to the same deal.
But since US government securities are selling well world-wide, this hasn't happened. (Why are US government backed securities selling well? Do a
little web research, but basically even with whatever insecurities they may have, there really aren't many safer investments for large amounts of
money in the world financial market right now. Stocks may go much lower still, banks may fail, businesses may go bankrupt, gold is speculative and
varies, other government bonds and securities are at least as shakey, and despite the major qualms people are starting to have, there isn't really
any safer currency available than the US dollar for them to migrate to).
There's a lot of Chinese money (mostly private) invested in the US, but not because investments from a rich Chinese person is treated any different
than money from a rich Pakistani person. It's because the Chinese happen to have a lot of money, and in particular because of the imbalance of
trade. Basically, US businesses buy a lot more from Chinese businesses than they buy from us, so they wind up with more spare dollars than they want
to stock away, so they use them to buy US stock or T-Bills or other investments - as a hedge. However they get the same deal that other domestic and
foreign investors get. Having that Chinese money competing to buy US government securities has helped keep the interest rate the US Govt must offer
to everybody lower. Of course, American or Saudi money competing in the auction has the same effect.