Paulson: Russia Tried to Get China to Blow Up Fannie and Freddie

Paulson: Russia Tried to Get China to Blow Up Fannie and Freddie

beforeitsnews.com

Paulson learned of the “disruptive scheme” while attending the Beijing Summer Olympics. In his memoir, Paulson writes, according to Bloomberg which was able to obtain a copy of the book before its official publication date of February 1, that the Russians made a “top-level approach” to the Chinese “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies.”

(visit the link for the full news article)

This is indicative of how dangerous the Chinese holdings of U.S. debt are. It is a huge financial weapon that the Chinese can use anytime they choose for any purpose they choose. But by selling only selective debt, rather then selling various random chunks of their U.S. debt, the Russians have brought to the attention of the Chinese, if they hadn't thought of it already themselves, how to launch a limited financial nuclear attack by getting them to focus on a particular type of debt, such as Fannie Mae or Freddie Mac. Such a surgical strike would do much to protect the overall investment the Chinese have in U.S. debt, but at the same time cause a severe headache for the U.S.

This is a headline from 2007:

China may sell off Treasury bonds if US imposes trade sanctions

The Chinese government has hinted that it may liquidate its vast holding of US Treasury bonds, potentially triggering a crash in the dollar, if Washington imposes trade sanctions to force a yuan revaluation, The Telegraph reported.source

These articles exemplify how China controls the US through its vast holding of treasury securities currently equaling approximately $790 billion, making it the largest foreign holder of US debts.

So why would countries buy US debts? For long US debts have been a relatively safe and profitable investment. Americans and their government could spend like no other country could as there were always countries willing to pay for these costs (through buying US securities) After all, the largest economy could not go bankrupt; the US was expected to have plentiful resources to pay off its debts. In other words, the US was seen as 'too big to fail'.

Until recently. For a long time it is being questioned whether the US would ever be able to pay off its debts. Simultaneously, the Fed increases the money supply and as they have stopped publishing M3 money supply data, it is hard to exactly determine how much money is in circulation, but it is believed to be very significant. This allows the Fed to pay off debts but it also pressures the value of the Dollar in a downwards spiral, which naturally affects the stability of the American economy and the trust that investors such as China have. The crisis has only confirmed the suspicion regarding the instability of the American economy.

My explanation indicates that China finds itself in between a rock an a hard place. Being the number one foreign debt holder, its investment is so big that it wouldn't benefit from an American economic collapse. Additionally, it would lose one of its biggest customers. This loss could not yet be ''absorbed'' my China's middle class. In the long-term this would be a viable solution, but right now not, making it obvious that China wouldn't benefit from a direct American economic collapse.

However, in theory China holds the key to make or break America. In recent years there have been rumors about China considering to dump its US treasury securities. This alone already triggered panic on stock markets and thus, indicates the impact such a move would have.

So what does China do? First of all, they have started diversifying away from the Dollar. It has invested in precious metals such as gold but also in other currencies such as the Euro, alike Russia. Second, they have stopped increasing their investment in US securities, making their total investment hovering around a maximum of 800 billion Dollars. At the same time, debts continues the grow, but who is going to fill up that 'gap'. Japan has its own economic trouble and emerging powers are way too weary to invest in US debts. Obviously, this increases the fear that the US won't be able to pay off its debts.

By spending like no other country could, America has sold its soul to the devil. Yes, it brought wealth, extreme wealth, but its downside is now showing up. The greed of those in control has spun out of control resulting in an uncontrollable deficit and foreign control on US freedom of political/strategical movement. This is only the beginning, it's going to get worse and worse.

China has started exploiting their problem by threatening the US to start dumping its Treasury securities and hence, instigating an inevitable market crash. This would bring the US on its knees, exactly what an emerging superpower as China wants, but as I mentioned before: China is politically, economically and militarily not ready for this step. Such an event would create enormous chaos domestically (due to unemployment) nor would the Chinese economy be able to cope with such an event (yet).

However, what they can do is launching small economic attacks to effectively keep the US terminally ill. This keeps them to a certain extent in control, at least in such away that they cannot maneuver freely by for instancing imposing sanctions without anyone stopping them. The fact that Russia and China jointly launch such attacks shows how much they want to limit US control over the world.

This is why it didn't come as a surprise that Obama wants to radically reduce the national debt, but I doubt it is still possible to make the pumps work hard enough to prevent the ship from sinking.

Either way, the tables have turned. This is not only muscle flexing, China is showing that America should think twice before messing with them. For long, China was in no such position, but it is clear that they have grown strong enough to behave in such a way.

I recently read the following quote and unfortunately I think it is illustrates very well the events we are experiencing:

The 'American Empire' has peaked, is on a decline
Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."

beforeitsnews.com
(visit the link for the full news article)

[edit on 1-2-2010 by Mdv2]

click on full to read entire article

Firstly he is correct, but he's also is full of BS

If you read the article the fomer Treasury Secretary keeps calling it debt and the former Treasury Secretary not once, at least in the article, mentions that it's Treasury Debt.

Where was this Goldman Sack of..... when he was in office?
I'm not denying the threat, but he helped put it in their hands.
This was Mr. Bailout!

Chinese central bank official attacked reported comments by U.S. Treasury Secretary Henry Paulson that China’s high savings rate helped trigger the global credit crisis.

“This view is extremely ridiculous and irresponsible and it’s ‘gangster logic,’” Zhang Jianhua, the bank’s research head, said.

Zhang countered that U.S. policies that aggravated imbalances in that nation’s economy, which was excessively dependent on consumer spending, were a key cause. He also cited failures in corporate governance and risk management at investment banks.

‘Finding an Excuse’

What do you guys think?
Is consumer spending the cause of war?
Is it the MAIN key ingredient?

“The ‘China-responsible theory’ is an attempt by major western economies to find an excuse for their own policy and regulatory failures,” Zhang said in the transcript. “I’m afraid these countries are also finding an excuse to issue trade protection measures or impose pressure on China in the future.”
www.bloomberg.com...

Policy and regulatory successes for the gangsters and failures for the average citizen.

I am not denying the threat that China poses, i'm just saying the messenger is a piece &#$$.

S&F's. I think where push comes to shove may well be over the Iran issue. China has 'real' energy contracts there and will not take kindly to them being destroyed. Clearly, Russia will not, as put forth in the article. They've already had enough proxy warfare.

I tend to think that the administration in washington realizes this, but like it or not, they take their orders from the Council on Foreign Relations. Just like every administration since at least 1913. Financial devastation and war lie right ahead, and from it will rise a New World Order. Order from Chaos and all the Sheep will be promised Peace and Safety in exchange for Freedom.

Edit to add: Fannie and Freddie blew up all by themselves. They didn't need any help from our 'enemies'.

[edit on 1-2-2010 by HimWhoHathAnEar]

reply to post by HimWhoHathAnEar


Spot on, this was indeed about China's unwillingness to cooperate toughening sanctions against Iran:

U.S. Arms for Taiwan Send Beijing a Message

WASHINGTON — For the past year, China has adopted an increasingly muscular position toward the United States, berating American officials for the global economic crisis, stage-managing President Obama’s visit to China in November, refusing to back a tougher climate change agreement in Copenhagen and standing fast against American demands for tough new Security Council sanctions against Iran.

Now, the Obama administration has started to push back. In announcing an arms sales package to Taiwan worth $6 billion on Friday, the United States leveled a direct strike at the heart of the most sensitive diplomatic issue between the two countries since America affirmed the “one China” policy in 1972.

source NYT

[edit on 1-2-2010 by Mdv2]

Obama's Dangerous China Game

Don't be surprised if the United States and China start rattling each other's cages again, and this time, perhaps seriously. The Obama administration triggered this latest round by announcing on Friday a $6.4 billion arms sale to Taiwan. For Chinese leaders, this is the worst affront, since they consider Taiwan part of China. They retaliated immediately, mainly by announcing sanctions against unspecified U.S. companies involved in the arms sale. Similar byplay has occurred many times before, but never at a time when American fortunes seemed on the decline and Chinese prospects so bright-and never before with Chinese leaders at once so self-confident, even arrogant, about their international power, yet still so insecure and paranoid about their internal control over political and ethnic dissidents.

The cage rattling won't come close to blows, but it will unsettle and unnerve international affairs, and ignite a new and damaging testing of great power wills. Count on this tug of war to block mutual cooperation on stifling the nuclear programs of Iran and North Korea and to further sour ongoing trade and investment disputes and charges of Chinese Internet censorship, and whatever else turns up. Most worrisome, it's not at all clear that Chinese and American leaders have thought strategically about their next moves and how to keep the situation within bounds.

source

It's going to be interesting how this muscle flexing is going to evolve. It is obvious that the US eventually decided to stimulate China by their Taiwan move as retaliation for China's reluctance to toughen sanctions on Iran.

I am curious to see who is going to come off best.



[edit on 2-2-2010 by Mdv2]

Are we really going to take Henry Paulson's word for it? This sounds strangely like a deflection attempt away from the that fact that he and his predecessor are under scrutiny for corruption involving the bailouts. Who cares about Goldman Sachs when China is the big bad guy, right?

Originally posted by Someone336
Are we really going to take Henry Paulson's word for it? This sounds strangely like a deflection attempt away from the that fact that he and his predecessor are under scrutiny for corruption involving the bailouts. Who cares about Goldman Sachs when China is the big bad guy, right?

Why would Paulson blame China for this if he wouldn't have concrete evidence. It's quite a claim that is politically sensitive. Besides, Goldman Sachs and alike have turned out to be bulletproof against any kind of allegations, which makes it highly unlikely that Paulson would be paid for trying to shift the blame away from corporate America to China.

The story that I read the other day here on ATS reminded me of this thread:
Chinese Military: Sell U.S. Bonds To Punish Washington DC

China's military stepped up pressure on the United States on Monday by calling for a government sell-off of U.S. debt securities in retaliation for recent arms sales to Taiwan.

A group of senior Chinese military officers also said in state-controlled media interviews that Beijing's leaders should boost defense spending and expand force deployments in the wake of the Pentagon's announcement last month of a new $6.4 million arms package for the island state claimed by Beijing.

Senior officers from the Chinese National Defense University and Academy of Military Sciences made what some view as an economic warfare threat, something outlined in past military writings.

The comments by Maj. Gen. Zhu Chenghu and Maj. Gen. Luo Yuan and Senior Col. Ke Chunqiao appeared in the state-run Outlook Weekly magazine, part of the Xinhua News Agency, published in Beijing on Monday.

Gen. Luo warned that China could attack the U.S. "by oblique means and stealthy feints," and he called for retaliation for the arms sale.

"For example, we could sanction them using economic means, such as dumping some U.S. government bonds," Gen. Luo said.

"Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counterpunches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease," said Gen. Luo, a researcher at the Academy of Military Sciences.

China holds nearly $800 billion worth of Treasury debt securities. It is not clear what impact selling off some of the securities would have on the struggling U.S. economy. However, analysts say that selling off some bonds could drive up interest rates and disrupt U.S. economic recovery efforts.

At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face," Mr. Crowley said. "The economies of the United States and China are intertwined."

The Chinese military comments, however, reflect the contents of a 1999 book by two Chinese colonels called "Unrestricted Warfare," which called on the Chinese military to adopt unconventional methods and strategy in waging war, specifically both "financial" and "trade" war along with other forms of warfare.

source

The fact that China have threatened to use their economic weapon against America as well as the renewed calls for using it, should confirm Paulson's claim.