NEW YORK – Could real estate on American soil owned by China be set up as “development zones” in which the communist nation could establish Chinese-owned businesses and bring in its citizens to the U.S. to work?
That’s part of an evolving proposal Beijing has been developing quietly since 2009 to convert more than $1 trillion of U.S debt it owns into equity.
Under the plan, China would own U.S. businesses, U.S. infrastructure and U.S. high-value land, all with a U.S. government guarantee against loss.
Yu Qiao, a professor of economics in the School of Public Policy and Management at Tsighua University in Beijing, proposed in 2009 a plan for the U.S. government to guarantee foreign investments in the United States.
WND has reliable information that the Bank of China, China’s central bank, has continued to advance the plan to convert China’s holdings of U.S. debt into equity owned by China in the U.S.
The Obama administration, under the plan, would grant a financial guarantee as an inducement for China to convert U.S. debt into Chinese direct equity investment. China would take ownership of successful U.S. corporations, potentially profitable infrastructure projects and high-value U.S. real estate.
The plan would be designed to induce China to resume lending to the U.S. on a nearly zero-interest basis.
However, converting Chinese debt to equity investments in the United States could easily add another $1 trillion to outstanding Obama administration guarantees issued in the current economic crisis.
As of November 2012, China owned $1.17 trillion in U.S. Treasury securities, according to U.S. Department of Treasury and Federal Reserve Board calculations published Jan. 16.
Concerned about the unrestrained growth in U.S. debt under the Obama administration, China has reduced by 97 percent its holdings in short-term U.S. Treasury bills. China’s holding of $573.7 billion in August 2008, prior to the massive bank bailouts and stimulus programs triggered by the collapse in the U.S. mortgage market, dwindled to $5.96 billion by March 2011.
Treasury bills are short-term debt that matures in one year or less, sold to finance U.S. debt. Holdings of Treasury bills are included in the $1.17 trillion of total Treasury securities owned by China as of November 2012.
In addition to a national debt in excess of $16 trillion, the U.S. government in 2010 faced over $70 trillion in unfunded obligations, including Social Security and Medicare benefits scheduled to be paid retiring baby boomer retirees in the coming decades, with unfunded obligations showing no sign of being reduced with Congress at a deadlock over reducing federal government spending.
Yu Qiao observed that if the U.S. dollar collapsed under the weight of proposed Obama administration trillion-dollar budget deficits into the foreseeable future, holders of U.S. debt would face substantial losses that the Financial Times estimated “would devastate Asians’ hard-earned wealth and terminate economic globalization.”
“The basic idea is to turn Asian savings, China’s in particular, into real business interests rather than let them be used to support U.S. over-consumption,” Yu Qiao wrote, reflecting themes commonly suggested by Chinese government officials. “While fixed-income securities are vulnerable to any fall in the value of the dollar, equity claims on sound corporations and infrastructure projects are at less risk from a currency default,” he continued.
The problem is that, in a struggling U.S. economy, China does not want to trade its investment in U.S. Treasury debt securities, with their inherent risk of dollar devaluation, for equally risky investments in U.S. corporations and infrastructure projects.
“But Asians do not want to bear the risk of this investment because of market turbulence and a lack of knowledge of cultural, legal and regulatory issues in U.S. businesses,” he stressed. “However if a guarantee scheme were created, Asian savers could be willing to invest directly in capital-hungry U.S. industries.”
Yu Qiao’s plan included four components:
China would negotiate with the U.S. government to create a “crisis relief facility,” or CRF. The CRF “would be used alongside U.S. federal efforts to stabilize the banking system and to invest in capital-intensive infrastructure projects such as high-speed railroad from Boston to Washington, D.C.
China would pool a portion of its holdings of Treasury bonds under the CFR umbrella to convert sovereign debt into equity. Any CFR funds that were designated for investment in U.S. corporations would still be owned and managed by U.S. equity holders, with the Asians holding minority equity shares “that would, like preferred stock, be convertible.”
The U.S. government would act as a guarantor, “providing a sovereign guarantee scheme to assure the investment principal of the CRF against possible default of targeted companies or projects”.
The Federal Reserve would set up a special account to supply the liquidity the CRF would require to swap sovereign debt into industrial investment in the United States.
“The CRF would lessen Asians’ concern about implicit default of sovereign debts caused by a collapsing dollar,” Yu Qiao concluded. “It would cost little and help the U.S. by channeling funds to business investment.”
WND MONEYWorldNetDaily Exclusive
True debt exceeds world GDP by $14 trillion
President’s 2010 budget deficit 5 times larger than U.S. output
Published: 03/21/2011 at 9:17 PM
Read more at http://www.wnd.com/2011/03/278017/
According to the U.S. Department of Commerce Bureau of Economic Analysis, U.S. GDP for 2010 was $14.861 trillion. World GDP in 2010, according to the International Monetary Fund, was $61.936 trillion.
Shock the Washington establishment by participating in the “No More Red Ink” campaign and shut down all new plans for bailouts, “stimulus” spending and even the funding for Obamacare.
“As government obligations continue to spiral out of control and the U.S. government shows no willingness to make the magnitude of spending cuts required to return to fiscal responsible, the U.S. economy is headed to a great collapse coming in the form of a hyper-inflationary great depression,” says economist John Williams, author of the website Government Shadow Statistics.
Statistics generated in Williams’ most recent newsletter demonstrate the real 2010 federal budget deficit was $5.3 trillion, not the $1.3 trillion previously reported by the Congressional Budget Office, according to the 2010 Financial Report of the United States Government as released by the U.S. Department of Treasury Feb. 26, 2010.
The difference between the $1.3 trillion “official” 2010 federal budget deficit numbers and the $5.3 trillion budget deficit based on data reported in the 2010 Financial Report of the United States Government is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.
The calculations in the 2010 Financial Report are calculated on a GAAP basis (Generally Accepted Accounting Principles) that includes year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.
Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.
“The broad GAAP-based federal deficits, including the Social Security and Medicare unfunded liabilities, have been in the $4 trillion to $5 trillion range in 2008 and 2009, and 2010′s deficit again likely was near $5 trillion, remaining both uncontrollable and unsustainable,” Williams wrote.
“The federal government cannot cover such an annual shortfall by raising taxes, as there are not enough untaxed wages and salaries or corporate profits to do so,” he warned.
In his analysis of the 2010 Financial Report of the United States, Williams listed both an official accounting and an alternative.
“The estimate of a broad 2010 GAAP-based deficit at $5 trillion is mine,” he noted. “At issue with the published report, consistent year-to-year accounting was not shown, with a large, one time reduction in reported 2010 Medicare liabilities, based on overly optimistic assumptions of the impact from recently enacted health care legislation.”
U.S. Government GAAP Accounting Federal Budget Deficits U.S. Treasury, Financial Report of the United States, 2002-2010 (John Williams, Shadow Government Statistics, ShadowStats.com)
Williams argues the total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, have effectively placed the U.S. government in bankruptcy, even before we take into consideration any future and continuing social welfare obligations that may be embedded within the Obama administration’s planned massive overhaul of health care.
“The government cannot raise taxes high enough to bring the budget into balance,” Williams said. “You could tax 100 percent of everyone’s income and 100 percent of corporate profits and the U.S. government would still be showing a federal budget deficit on a GAAP accounting basis.”
Williams argues the U.S. government has condemned the U.S. dollar to “a hyperinflationary grave” by taking on debt obligations that will never be covered by raising taxes and/or by severely slashing government spending that has become politically untouchable.
“Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover obligations,” he cautioned. “The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency.”
He is concerned that the Federal Reserve will supplement its current policy of Quantitative Easing 2, or QE2, under which the Fed intends to purchase by mid-year 2010 another $600 billion of Treasury debt with “QE3.”
“These actions (QE2 and QE3) should pummel heavily the U.S. dollar’s exchange rate against other major currencies,” he concludes. “Looming with uncertain timing is a panicked dollar dumping and dumping of dollar-denominated paper assets, which remains the most likely event as a proximal trigger for the onset of hyperinflation in the near-term.”
Williams predicts that the early stages of hyperinflation will be marked by an accelerating upturn in consumer prices, a pattern that has already begun to unfold in response to QE2.
“For those living in the United States, long-range strategies should look to assure safety and survival, which from a financial standpoint means preserving wealth and assets,” he advises.
Williams suggests that physical gold in the form of sovereign coins priced near bullion prices remains the primary hedge in terms of preserving the purchasing power of the dollar, as well as stronger major currencies such as the Swiss franc, the Canadian dollar and the Australian dollar.