Economiasma – China & The U.S. Recovery – A Letter to Chinese Vice President Xi Jinping

Chinese Vice President Xi Jinping has called for “new type of relationship between major countries.” I agree. Here’s my Weekly Whiff of Economic $cents:

What seems to be missing from the U.S,=China dialog is the voice of the American consumer. I happen to be one – so – I decided to write the following letter to Xi Jinping:

Dear Mr. Vice President.

Our most sincere congratulations on your rise to the top – as we understand you shall soon be the President of China.

Our Dr. Henry Kissinger, whom you had supper with earlier this week, suggested that you view “the stability of the  China-U.S. as the seminal issue facing both parties” (forgive me…I’m paraphrasing Dr. Kissinger’s interview with Charlie Rose today). We would like you to know we are in complete agreement with you. Furthermore, as American consumers who buy the bulk of the products manufactured by China, we have a suggestion. Here ya go:

1. A healthy, balanced relationship involves give and take – withdrawals and deposits. Let’s be honest – we need each other. China’s health depends upon America’s health – and vice-versa. If the American consumers capacity to buy the goods China manufactures is diminished – China gets hurt.

2. The American consumer’s capacity to buy Chinese manufactured goods has diminished. This is primarily due the way our government used the funds (U.S. treasuries you purchased) to bail out the big banks – yet kept American consumers on the hook for inflated home mortgage balances when the real estate valuations collapsed. By the way, most American consumers don’t have a sub-prime mortgage – no matter what you’ve read. The health and confidence of the American consumer are in the long-term strategic best interests of China.

3. Imagine how you might feel if you were obligated pay a mortgage balance say around $200,000 – when the current value is $100,000. In America, we call this an “air ball.” Imagine (one more time) if American consumers had their mortgage note amounts reduced to the current appraised value of their primary personal residence…re-amortized…to produce market-value mortgage obligations – with monthly payments reduced accordingly — do you realize how this would tangibly recapitalize the American consumer? We American consumers would have a whole heck of a lot more discretionary income – meaning – money to maintain our increase our appetite for Chinese manufactured goods!!! Good for China and hood for the U.S. right? Well, hang on a minute…

4. There’s NO WAY the U.S. has the capital to support this type of across the board revaluation the American consumers so desperately deserve. Furthermore, if we asked our banks to take these write-downs, they’d be insolvent and we would just be creating another problem. So, we have come to you – for a little give and take – Like I said above, “Let’s be honest – we need each other.” We need China’s help. China has made a ton of money off the U.S. over the past several decades… a vastly greater sum than the U.S. side of the relationship selling to China. Here’s how we suggest you help us out:

A. For the U.S. $4.5 trillion in U.S. debt currently held by China, we need you to allow the U.S. to stop paying interest on $3 trillion for 20 years.

B. Each month (if that’s how we pay China interest on U.S. Treasuries you hold) the U.S. government will set aside the monthly interest payment on the $3 trillion to fund the Chinese American Recapitalization Treaty (CART). We’ll use this fund to fund the principal write-downs of the American consumer mortgages held by our banks. Yeah, we know…American banks get another good deal. Actually, it’s China and America working together to arrange a solution that will benefit BOTH countries.

C. Oh yeah, the American banks will write down all their mortgages to current appraised value – even if they’re Freddie, Fannie or FHA backed loans…Each bank will create a (CART) account whose total will be the cumulative sum of the American consumer mortgages they write-down to current appraised value. The U.S. government will let them hold this off-balance sheet. Every month, the interest reserve will be distributed pro-rata to each bank’s CART account – repaying the balance in the Cart over the 10 year term.

This is the solution that will benefit both of our countries – although no politician in the U.S. has the courage to talk with you about this. Right now, we have the CART before the horse in this country. We need your help to rearrange this backward arrangement that continues to degrade the financial wherewithal of China’s most important customer – The American Consumer.

With a recapitalized American consumer, vastly increasing discretionary income in the U.S. – unemployment and productivity levels will rebound much more rapidly. U.S. tax revenues will increase. We will commit as a nation,  that we will NOT run a budget deficit over the next 20 years either. We’ll approve a constitutional amendment declaring the same. Hey, we may have to borrow a few billion bucks as this program – and its positive impacts – work their way throughout our economic system.

P.S. – Imagine the goodwill China would create around the globe with a strategic move like this! Finally, you can even suggest that this was “your idea” because no elected official in this country is capable of imagining multilateral solutions to clearly global economic problems.

We look forward to hearing from you.

Your Customer

Bill “The American Consumer” Dahl

Economiasma – My Weekly Whiff of Economic $cents





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