Say Hello to Your New

Charles Payne
Posted: Jan 18, 2014 12:01 AM
Say Hello to Your New

America is on sale and China keeps stepping up to the plate.

This week we learned China holds a record $1.31 trillion of our nation's debt after adding $12.2 billion in December (they're closely followed by Japan at $1.18 trillion).

The news was greeted with the usual outrage and questions over what kind of leverage does this give China over America. For years, it appeared that China has been able to manipulate its currency and the rules, because it supports profligate government spending.

Many wonder: what happens if China cuts off the spigot?

I've come to the conclusion that they're not cutting off the spigots; in fact, they're just getting started. The Chinese want to own it all- lock, stock, and barrel. The ambition of China isn't going to be contained by a Great Wall, mountains, oceans, different languages, or xenophobia; which no longer matters, to trump the needs of spendthrift nations that have squandered their own wealth. Ironically, this same script has been playing out between China and the West for centuries, with the tide swaying back and forth. There was a time when China only sold its most prized possessions to (mostly) British citizens in return for their silver.

The trade saw so much silver sent to China that other European nations became alarmed, while the work load was too much for indigenous mine-workers in the New World, this sparked demand for more rugged workers from the continent of Africa. There are two versions of what happened next, but the introduction of opium into China, as a cure-all began a reversal of silver flow out of the country and back into the coffers of Great Britain. Eventually, there would be a revolt ignited by Chinese leaders burning 20,000 chests of opium. The loss of that war triggered a series of wars and misfortunes that left China a wreck.

It all accumulated in the Boxer Rebellion: an uprising of peasants against their feeble Chinese rulers, but also against Western civilization, including Christianity. In order to fight back, China needed help from Japan and Western nations at an economic toll, which explains how debt destroys. China owed an indemnity of $335 million in silver and additional interest payments in gold.

This debt accumulated until December 31, 1940 at $700 million.

Boxer Protocol (debt):

* 29% Russia
* 20% Germany
* 16% France
* 11% UK
* 8% Japan
* 7% US
* 2% Belgium

The rest to other nations including Spain, The Netherlands, and Austria-Hungary:

Of course, there are many observations on how China became indebted, but the fact that it was debt to the rest of the world should serve as a cautionary tale for America, seems to be lost. Instead, the biggest worry is if the money stops coming. Well, the proverbial shoe is on the other foot; and while it's not necessarily looting- the Chinese are buying everything America is willing to sell.

First Emperor

"With his puffed-out chest like a hawk and voice of a jackal, Qin is a man of scant mercy who has the heart of a wolf. When he is in difficulty he readily humbles himself before others, but when he has got his way, then he thinks nothing of eating others alive.

"If the Qin should ever get his way with the world, then the whole world will end up his prisoner."
-Sima Qian, China's Grand Historian.

In 221 BC, Qin Shi Huang (known for the terracotta soldiers and horses that guarded his mausoleum) began unifying China, and would eventually give himself title, as First Emperor. His accomplishments were as significant, as China was a series of kingdoms with vastly different cultures, languages, diets, and beliefs. He was ruthlessly determined in uniting China. He introduced a national highway, a single calendar, coinage, weights and measures, codified law, and introduced tax collection. In addition to brutality, his rule was stiffened by the murders of scholars, and the burning of books.
Fast forward to 1949, when Mao began the People's Republic, invoking Qin and driven by the humiliation of China. He burned books, slaughtered thousands of scholars, and ruled with brutality once saying of Qin: "He buried 460 scholars alive - we have buried 46,000 scholars alive."

Now fast forward to the present: Maoism has faded, and faint hopes of revival were crushed in the past couple of years. China is making up for lost ground. (I read a story yesterday about China's rapidly advancement in innovation.) Once again, by the wealth accumulated from trade with the West, money pours into the coffers of China, but this time they aren't going to let it go up in smoke. Instead, the hundreds of billions are being used to buy the West. In addition to debt in dollars and Euros, investors from China have purchased our largest pork producer, and continue to gobble up as much real estate as possible.

China is sitting on $3.82 trillion in foreign-exchange reserves. Now, it's undisciplined America and other profligate western nations that are squandering their futures.

Last January I gave a speech in Mobile, Alabama, and got into a great conversation with the driver that picked me up from the airport. I asked how the economy was doing, he said," it was great," (oil port) then asked specifically about the "brothers." He replied, "Mobile was doing great for anyone that wanted to work," but somehow the conversation shifted to the best soul food spots.

To my surprise, he told me all had been sold to people from China. He added..."and the food is great! "

I was bewildered as to why everyone sold out. He continued by saying, "folks worked hard, their kids were not that interested or lacked the same work ethic, and the price was right." Of course, it's not just soul food joints in the south- the Chinese spending spree is a nationwide phenomenon.

In this week's Beige Book report, there was a note about a Chinese investment of $40 million near bankrupt Harrisburg, Pennsylvania. In 2011, Chinese investment in US real estate topped $10.0 billion, and then $8.2 billion in 2012, and surely the final tally will be higher for 2013. From condos in Brooklyn to $25,000 parcels in Detroit.

Agony...One way or another:

"He who will not economize will have to agonize"

I'm not xenophobic and in fact welcome free and fair trade, especially when we have the goods. I admire how China dug in for decades, working for crumbs and saving half of them. They haven't and still don't play by the rules, and that's largely the fault of American leaders that allow this to happen. Of course, the reason it is happening is, we cannot ask Americans to agonize in a way that would resemble economic pain anywhere else in the world. I keep hearing the words sacrifice, but it seems to mean that I pay more taxes and get demonized in the process.

"The harder I work, the more I owe the state, the less I work, the more the state owes me."
-Charles Payne

We have abandoned principles of sacrifice and dedication and replaced it with entitlement and comfort. The soft landing has become an American birthright, but a hard landing would jar our senses. The debt is mounting and a whirlwind of agony is around the corner. At the rate we're going, Qin will get his way, and the whole world will end up his prisoners; or in the case of America, his indentured servants.

For all the spendthrifts out there, don't worry; the spigot has only begun to pour it on.