If Republicans Want To Shut Down Washington, They’ll Have To Ask China’s Permission First

English: Ted Cruz at the Republican Leadership...Forbes – by Eamonn Fingleton

In their never-say-die efforts to defeat Obamacare, Tea Party Republicans brought the federal government a giant step closer to shutdown last night. What they seem not to have considered is how America’s foreign creditors will react.

Although China, Japan, and other major creditor nations have no dog in the Obamacare fight, they have a strong interest in preserving America’s basic financial, economic, and social stability. From their point of view, the Tea Party contingent is not following the script and a corrective may be necessary.  

If the creditor nations were to sell just a small proportion of their American assets, they could send Wall Street into a tailspin, with unpleasant implications for the net worth of many Republicans.

They are unlikely to push things that far but even if they were merely to slow the pace of their buying, bond yields would rocket and stocks could fall 15 percent in the space of a couple of weeks. A key thing here is that American asset valuations are at historic highs — the Standard & Poor’s 500 is on a P/E of 19 and long-term bond yields are still near their lowest in decades.

It is sometimes suggested that by triggering a sell-off, creditor nations would be cutting their own throats. Actually this is a characteristically myopic Western way of looking at things – a view that completely misunderstands how things have changed now that East Asians call the tune. The creditor nations are long-term holders who are largely indifferent to short-term fluctuations.

As a general rule, East Asians  hate drawing attention to themselves. But they are quite effective behind the scenes in making their views known. One of the most important ways they wield influence is through major Wall Street investment banks, which by no coincidence are openly hostile to the Tea Party’s latest gambit. Wall Street banks spend large amounts on political contributions, typically backing both Republicans and Democrats. Their money gives them plenty of face time to advise American elected representatives on “good economics,” a term that more and more these days amounts to economics that serves East Asia’s interests. Meanwhile American investors generally are short-term thinkers who rarely show much intestinal fortitude in riding out market downturns.

It remains to be seen how markets will react tomorrow but the betting is that, in the absence of a climbdown by Republicans, we will see a significant correction. And if  Tea Party stalwarts continue to stick by their guns in the weeks ahead, we could see damage particularly in techs and other high P/E stocks. For the record, major tech stocks that seem most richly valued on a forward P/E basis include CRM, LNKD, CCI, FB, and ADBE. Although future prospects may justify such valuations, the short-term action could be quite bumpy — certainly  bumpy enough to frighten a lot of the Republican rank and file.


8 thoughts on “If Republicans Want To Shut Down Washington, They’ll Have To Ask China’s Permission First

  1. What I think Forbes is trying to say is that Wall St is going to have to pause in its looting of America and throw Main St. a bone if scaring us doesn’t work. Only 11% of our population is in the stock market anyway.

    Main St. is awake now and sees the nationalization of the economy as one royal pain in the anterior, which benefits them not at all.

    Out here on Main St., we don’t care if there is a so-called government shutdown. Most of us wish they would shut down, go away and leave us alone. We would love to see the IRS, Homeland Security, TSA, EPA, Education, HHS and all those Hitler-designed people control programs defunded, tarred, feathered and deported. We the People don’t need them: their only purpose is control, control and more control to assure the blood-thirsty warmongers stay in power.

    Any Congressman or Senator who supports Obamacare needs to be recalled. Time to reinvent America without the oligarchs, perverts, psychopaths and sociopaths and use its original contract, the Constitution.

    1. Deported? Seriously???

      Who the hell else would want them anyway?

      It continually amazes me that people talk about deporting these traitors as if that would solve the problem. It wouldn’t. Like the cockroaches that they are, they’d just hide in the dark when the light comes on, only to return later when things have simmered down. Like cockroaches, they must be thoroughly exterminated, or they’ll continue to breed more monsters like themselves.

      Last I checked, the penalty for treason was hanging (hemp rope optional) by the neck till DEAD.

      Those POS communist bast@rds who trashed our country aren’t getting deported anywhere except to the end of a rope.

      A short drop and a sudden stop.

        1. Well, I was trying to keep things in check and not sound overly zealous… but if I ran the zoo, they would suffer the same fate as all traitors.

  2. It’s just the opposite, China would be happy to see some discipline in our government from the current reckless printing/borrowing& spending pattern that we’ve been engaged in so their remaining treasuries become worthless a little more slowly.
    The Chinese have known that we’re on autopilot for destruction, that’s why they’ve been dumping US cash (treasuries) on energy rich nations for long term contracts.

  3. The Chinese have been quite happy with the T-bills, quietly using them to buy assets around the world and using layering to buy assets within the US, I should imagine that when the balloon goes up and the people find out just how badly their government sold them out it will be too late.

    The economic “nuke” mentioned would only be used I would think, at a time that China saw America gearing up for an attack on them, it is a devastating weapon that America has done little to protect or defend against, in fact by exposing itself to more and more debt, it is making the finality of the “nuke” a certainty.

    The US in my opinion needs to have its “Soviet” moment, look at how Russia went into the Soviet collapse and how a couple years later it emerged lean, fit and rid of all the parasites and millstones that the Soviet empire burdened it with. In a short time it was able to start exploiting its resources effectively and to become an energy giant too but without a huge military bill dragging it down Putin has made Russia work and this is why he is so popular amongst the people there because he is seen as the man that put food on the table.

    America’s economy is like the Soviet one, irrevocably broken, for every dollar received in tax revenue several hundred are paid out, no business model like that can survive in the real world and with each year passing, the US economy withers, diminishes because of the huge bilking of the system by military, corporations and obligations to countries like Israel. Obama could have reversed this, collapsed the military empire, entered into a protectionist stance, concentrated on the US people, their needs and welfare and emerged the victor of a new era for America, an America no longer meddling in other’s affairs, an America with new industry and an honest economy, a military shrunk to an appropriate size for defence of the realm.

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