David Goldman (also known as “Spengler”) summarizes with approval the analysis of Chinese professor Jin Canrong. The professor’s thesis is this:
[T]he United States has issued a massive amount of excess currency due to the epidemic, and the amount of currency issuance far exceeds the normal needs of economic development, so there is a situation in which more currency is issued but production cannot be restored. Inflation in the United States is rising, which will put a lot of pressure on the U.S. finances. The U.S. federal debt is approaching $30 trillion.
What does this imply? At present, the interest on US Treasury bonds is more than 1 point, and the annual interest payment is about $300 billion US dollars, which is considered to be affordable. But if inflation approaches 5% or even exceeds 5% (interest rates will definitely follow after inflation exceeds 5), then the United States will need $1.5 trillion a year to repay the interest of 30 trillion federal treasury bonds, which will definitely lead to the bankruptcy of the government.
So the United States is actually looking to China now. You may have noticed that in the past, the United States has always said that China manipulated the RMB exchange rate and artificially lowered the RMB exchange rate. However, recently, the tone of the United States has completely changed… Why don’t you ask for appreciation? Because our things become more expensive as soon as the renminbi appreciates, and the United States must import our goods, and that adds to inflationary pressure.
Jin acknowledges that China also faces inflationary pressure. However:
[B]ecause our production has resumed and the supply of products is sufficient, we can manage inflation pressures better. The United States is not so easy to manage. They need us to provide goods. Otherwise, you won’t be able buy anything with so much money, and eventually money will become gold coupons.
These considerations put China in the driver’s seat, as Jin sees it:
The reasons mentioned above have made us very confident now. If you have enough confidence, you can make your request very frankly.
And China is making frank “requests.” They include that the United States (1) remove tariffs and technology sanctions and (2) drop extradition proceedings against Huawei’s Chief Financial Officer.
Treasury Secretary Janet Yellen seems to see things the same way as Jin. She has said that tariffs on Chinese goods hurt American consumers. It sounds like these tariffs may be on their way out. Jin says “it is very likely that Yellen will cancel the tariffs imposed on China by Trump. . .this year.”
Jin urges China to try to help bail the U.S. out of the mess he describes. But at a price, of course.
Goldman notes that Rush Doshi, the senior director for China at the U.S. National Security Council, cited Jin two dozen times in his new book called The Long Game: China’s Grand Strategy to Displace American Order. Thus, the Biden administration may be taking Jin seriously.
But apparently not seriously enough to take inflation, which Jin says could bankrupt the U.S., seriously.