Joe Shareholder gets Kung Pau'd by Chinese owned debt

The US has benefitted greatly from an abundant infusion of rich Chinese culture/influence over the last several decades. Specifically, egg drop soup, sweet and sour chicken, lemon chicken, deep fried wontons, egg rolls, General Tsjoe’s chicken, mu shu pork, bang bang ji, and fortune cookies. (Joe, lower east side Manhattan)

What else has China done for the US? How about its willingness to purchase United States Treasury bonds notwithstanding a swelling budget deficit. China has been the largest investor in US Treasury debt, which has provided much needed funds during a severe revenue shortfall. The US Congress has passed legislation after legislation, all designed to boost the economy and jumpstart spending again. However, it is actually the Chinese government, rather than the US government, that is funding the stimulus bill, TARP, cash for clunkers, housing credits, energy credits, etc. All of these efforts have all been fully dependent upon the financial backing of foreign entities. (Joe Lumbar Support….monetary style)

So now that we have a bloated deficit and the US economy is still limping along, what are China’s options?

WHY CHINA WILL EVENTUALLY STOP PURCHASING OUR TREASURIES:
Eventually all investors need to realize a return on their investment. In the case of China, this will mean slowing the flow of money into the US economy and expecting the interest on the debt to flow back into China. The Chinese government has to be concerned about two things however:

1. The US’ ability to pay back the debt. There are only two things you can do with debt, pay it back, or default it. If the US can’t pay back this debt and defaults, China will unleash Bruce Lee reincarnate in one of those export containers filled with Lo Mein noodles in order to Kung Fu his way across the US. (Joe up the Yangtze River without an oar)

2. Inflation on the US dollar. If the US economy fails to stabilize soon, and fails to substitute tax revenue from economic growth in place of selling debt internationally to fund government operations, then the printing press will be cranked up a level from “high” to “fancy green toilet paper” status, and hyperinflation will set in. Of course hyperinflation will ruin Chinese investments which have been purchased at fixed interest rates. (Joe - Fiber One or broccoli, broccoli beef in this case)

WHY CHINA CAN’T STOP PURCHASING OUR TREASURIES YET:
If China stops buying our Treasuries now and our number one source of revenue dries up, panic could set in. If this happens, the US economy - which is on extremely fragile footing anyway, could begin spiraling downward again. Should this happen, the chances of defaulting on the debt would be even greater. This scenario would be similar to financing the first three years of Joe’s medical school, but withholding cash for the fourth and final year just before he graduates and gets the six figure income he expects – enabling him to pay back the loans. Truthfully, however, Joe has no plans to go back to school after flunking out of St. Joe’s in Philadelphia almost a decade ago.

So what is China to do now? Undoubtedly, there are Chinese officials having a difficult time sleeping at night thinking about these difficult decisions. (Joe Wang, extra strength Ambien at night, restless leg syndrome during the day)

So what does this mean for Joe?

Well, Joe and JoAnn just sat down for a formal meal at the Panda Express. After convincing JoAnn that the Chinese custom is to only order one drink and to share a straw; and after he convinced her that she wasn’t holding the chopsticks the right way, so he should probably help her hold them while holding her hand in his; and also after breaking open a cookie before the date and inserting a typed out fortune advising her to “accept her next proposal”, he popped the question right then and there. “JoAnn, what should the current Chinese predicament mean to my investment strategies in stocks?” After a sigh of relief, JoAnn wisely replied, “Be careful about your investments until the economy has sufficiently turned around and we have stiffened our fiscal policy”. Joe then thanked her for the advice, and started in on his fried rice on Kung Pao chicken.