• Does China own the US? What does Forbes say?

    From BOB KLAHN@1:123/140 to ALL on Thu Jan 1 00:00:00 1970

    Forbes <http://www.forbes.com/>

    9/29/2013 @ 11:14AM |464,090 views

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

    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 prove 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 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 bonds yields are still near their lowest levels in

    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 ΓÇô a view that completely misunderstands how things have
    changed now that East Asians call the tune. The point is that
    the creditor nations are long-term holders who are largely
    indifferent to short-term fluctuations.

    As a general rule, the East Asian creditor nations 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. These latter in turn 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 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.

    *This article is available online at: http://www.forbes.com/sites/eamonnfingleton/2013/09/29/ if-republicans-want-to-shut-down-washington-theyll- have-to-ask-chinas-permission-first/*

    BOB KLAHN bob.klahn@sev.org http://home.toltbbs.com/bobklahn

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