Thursday, May 28, 2009

The Safer Side of Bonds?

I had an idea today, and the logic goes as follows:
America's massive debt to China makes us safer. Why? There's reasonably high correlation between the following: really evil people, people who hate America, people who rely on China's economic engagement and/or tacit political support.

During the Korean War, China got involved solidly on the side of North Korea. Since then, a lot of our problems with North Korea are compounded by China's lack of willingness to play ball. But now that we owe China hundreds of billions of dollars, they can't really take sides against us in an armed conflict, and today, the Wall Street Journal reported that China may be willing to consider sanctions as North Korea pursues nuclear weapons. I think China is waking up to their new incentive structure, and we'll be seeing them take steps, if necessary, to safeguard what is essentially their investment in our future.

Alexander Hamilton said "a national debt is a national blessing," and I think we're going to start seeing it in action.

(That said, this huge debt burden may prove crippling, lead to high interest rates, rampant inflation, increased rates of corporate bankruptcy, and rollbacks in services and government programs. But at least China will help keep the nukes away.)

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