Greenspan not worried China will begin dumping U.S. Treasuries

At first glance this news seems good. However the reason Greenspan cited as to why China will not begin dumping U.S. Treasuries is because “China would not have anyone to sell the securities to.” Nothing good about that.

NEW YORK (Reuters) - There is little reason to fear a wholesale pullout by China out of U.S. government bonds, former Federal Reserve Chairman Alan Greenspan said on Tuesday.

While expressing concerns about China's runaway growth rate and what he described as overvalued stocks, Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates.

The United States has essentially managed to thrive over the past 36 years or so based on a fiat currency. Fiat money is defined as money (as paper currency) not convertible into coin or specie of equivalent value. Our dollar has not officially been backed by gold since 1971. It is simply paper printed by the Federal Reserve. The Federal Reserve decides how many dollars will be printed and kept in circulation. As Senator Ron Paul stated before the U.S. Congress: “In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.

It sounds like a great deal for everyone, except the time will come when our dollars-- due to their depreciation-- will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production.” In 1934 a dollar was worth 1/20th of an ounce of gold; $20 bought an ounce of gold. Today a dollar is worth approximately 1/600th of an ounce of gold, meaning it takes $600 to buy one ounce of gold. In a Reuters article Stephen Johnson stated: "The dollar is perhaps the biggest problem. As a net debtor, the United States must attract some $3 billion every working day to finance a gaping current account deficit that in 2006 amounted to 6.5 percent of gross domestic product.

Economic rivals such as China and Japan, on the other hand, boast massive surpluses.

Since Americans also spend more than they save, the money to cover the U.S. deficit must come from foreign lenders such as central banks. China, which holds more than $1 trillion in foreign currency reserves, is one of the biggest creditors." The United States has serious economic problems to deal with. It is interesting that with all the news and debates and sound bites surrounding the presidential campaign we rarely hear this issue being addressed. How often do we really hear about it from our own representatives in congress? This appears to me to be the number one issue facing this country. How is it that we can continue funding “the war on terror”...retirement, education, free health care...a chicken in every pot? Where is the money coming from? Are we to simply print more? If investors choose not to invest in the U.S. dollar, then our government will be forced to raise interest rates in order to support our out of control government spending. Can you imagine how high the rates could get? Can we the people afford our government? How long will Americans continue to look the other way and pretend everything is just going to continue as always?