Tuesday, October 28, 2014

Dear China, Here's Where Your Money Went

In a previous post I calculated the statistical causes of the US federal deficit and debt.  It was to answer the debate, once and for all, whether it was military spending or social spending that was the primary cause of our financial woes.  When the statistics were tallied it turned out nearly 2/3rds of the deficit/debt was caused by social spending and only 25% military spending.

However, while this addresses the budgetary issues facing the country (which will be summarily ignored), it does nothing to address the counterparty to this deficit spending.  Namely, our creditors. Specifically China.

The whole idea of "lending" money is that you do so expecting to not only get your principal back, but some interest income as well.  And the way your debtor will pay you back is by taking the proceeds from the loan and investing it in a venture that will generate a rate of return in excess of the interest rate being charged.

However, let's focus on the key word of that sentence - "invest."

To sane people or people who care about getting their money back the quality of the loan is based on the quality of the investment that money is used to finance.  Therefore it behooves the lender to analyze where the proceeds of the loan are going to go.  This was my primary job during my 15 year tenure in banking.  My job was to take loan applications, analyze their creditworthiness and determine whether they proceeds would not only be invested wisely, but generate a rate of return that would satisfy the debt obligations.

Out of the thousands of loans I analyzed a majority of them were bad investments.  Another real-estate development in an already-oversaturated market.  A loan to my boss' buddies with no collateral.  Sports bars for ex-jocks going through midlife crises.  And horse hobby farms for the trophy wives of insolvent faux "businessmen."  There was even the famous "cereal bar" where our money would be used to purchase milk (which does not make a good form of collateral).  But out of all these horrendous and idiotic investments, they are nowhere near as bad as the US government bonds you Chinese got suckered into buying.  And the reason is simple:

The majority of the money you lent us was not invested.  It was merely pissed away.

Consider a statistical break down of where your money was "invested" here in the US.

The Military 26%

One of the largest components of the US budget, your money was used to buy weapons and pay soldiers.  Sadly, the military is not an investment.  Matter of fact, it's quite the opposite.  The military is PURPOSELY designed to destroy things.  Not build them.  You will not get a return on your investment from the US military.

Social Security/Medicare 33% combined

The reason I combined these two is because of the delicious irony of how your money was "invested."  Social Security is paid to people who are retired or are disabled.  In other words, they don't work.  You are merely paying these people to live with no expectation of a return on your investment.  Worse still (and doubly ironic) is Medicare is basically paying to keep old people alive who are about to die anyway.  Instead of investing in the "youth" who might have the capacity to earn the money to pay you back, you are investing in old people who not only DON'T work, but will die soon.

Income Security 16%

Oh, you know how I said if you invested in the youth you'd at least stand a shot at getting some modicum of return on your investment?  Yeah, well there are some young people out there who could work, but they're lazy and just don't want to.  That or they so spectacularly screwed up their lives by having children they can't afford or some other such life-destroying move that they're too pre-occupied living off of others to be concerned about paying you back.  Besides, this is the dumbest segment of our society and they frankly probably don't know the different between China and Japan.

Health 9%

Remember those lazy people I was telling you about?  Yeah, the ones that don't work?  Well they tend to have children at higher rates than their responsible citizen counterparts, and so they need health care.  You could make the argument that these kids will grow up and maybe get jobs, thereby giving you a slim hope you might recoup a fraction of your investment, but a visit to one of our fine trailer parks, ghettos or barrios will show you the cycle of poverty these unfortunate children are condemned to.

Education 4%

You may have your final hopes pinned on that a small percentage (4%) of your money went into education and training.  This should make people more productive, get them higher paying jobs, and thus provide the tax base to finally pay you guys back.

Sadly, your hopes are misplaced, because unlike our Chinese and Asian counterparts, the majority of American education does NOT go to productive endeavors, but worthless frivolous ones, specifically the humanities and liberal arts.  The result is not only an industry that indoctrinates our youth into socialism and sloth, but gives them no real practical skills that will help generate economic growth.  You won't get your money back here, but at least Tina the Suburbanite Princess got her Masters in Transgendered 13th Century Sculpture Fairy Studies.  Thanks hard working Chinese people!

We could go on, but that accounts for nearly all of the money you've lent us.  And as you noticed none of these things even come close to "investments."

The sad truth is that America did not "invest" the money you lent us. It bribed.  It bribed our parasitic class to vote for democrat politicians, keeping them in power and preventing them from having to work real jobs (perhaps you are aware of our president's complete lack of real-world work?)  Oh sure, our leftist politicians say they're "investing," but that is nothing more than a co-opted word used to hide their true intentions.

The issue is what are you going to do about it?  I personally am shocked China, let alone anybody in the world lends the US government (and by association) our parasitic class money.  What is literally happening is we are essentially enslaving hundreds of millions of Chinese.  We have you work the menial jobs Americans are too lazy to work themselves, while stealing borrowing money to pay for those goods and services.  Thus the welfare mother doesn't work, but she still gets Chang at the Samsung plant to build her a nice new smart phone, bought and paid for with money you gave her via the US federal government.

What the Chinese people and its government have to understand is that it is unlikely you will ever be paid back the money you lent us.  Not because the US government chooses not to pay you back, but because the population of the US is decaying and declining to the point they are incapable of working up the economic growth to pay you back.  I can only hope (and grant permission to anybody who wants to) to translate this into Cantonese and/or Mandarin, and would love to hear arguments why the Chinese people are making such a horrible investment.

This post is now on Reddit.  Land of "This Guys An Idiot Because He Disagrees With Me."  Would be horrible if a Cappylanche were to happen and it gets voted up.


Anonymous said...

Trade imbalance. They have so much US money that another containership full is practically worthless to them. So they park it back with us. They likely expect that the rate of return will be dismal, but less dismal than if they let it sit idle in a container yard. it likely isn't even worth as much as it would cost to buy another container to put it in.

Meanwhile, the Samsung factory is feeding the peasants so they don't start wondering about rolling the revolution dice again.


Jose said...

Shhhh, don't tell them.

Anonymous said...

China lends money by buying worthless bonds from the US gov't. China doesn't even really care if the interest gets paid, its money spent to keep the Yuan artificially low to the USD. China does the same thing with Europe.

America doesn't pay back the interest through productive endeavours but just prints the money. This creates an inflation that is destroying the middle class. The poor don't care, they still get welfare. The rich don't care, they earn through assets.

With a low yuan the US gets ridiculously cheap goods so that even poor Americans can afford gadgets to keep them happy. With a low yuan China doesn't make much money off selling these cheap products with thin margins, but it can build up its manufacturing base and technology. Its a symbiotic relationship. In this case though, the bitch is the US, who is happy to keep sucking on China's teat. But when China turns off the welfare, the US is going to suffer.

Why has no one done anything about this? Because there is no political will. Right now, China is easy money for everyone. And when a society becomes accustomed to welfare, its hard to wean them off it. If we were to try to reverse the trend, bring manufacturing back to the US, the average US standard of living would be cut in half. And the US people might not be able to think ahead 50 years, but they'll notice when they can no longer buy their gadgets to keep them satiated. So you bet your ass the Decline is real. There will be a correction someday, and it will come hard! Whereas the chinese workers work 16 hours a day for $1 a day, US workers now want to be paid $15/hr for flipping burgers. Reverse the situation of these two workers, and expect riots across all of America.

Faithless Cynic said...

Why do they buy our debt? CONTROL. If we fuck with China they can dump or threaten to dump our debt. I do not know if this is still a credible threat, since the Fed can buy up any debt the Chinese dump.

Ras al Ghul said...

I think the Chinese are well aware of where the money is going, and are happy to provide it because the more they give us, the more we piss away our future.

They will defeat us without having to fight us.

Just as England defeated Spain indirectly by encouraging their massive debt build up

Anonymous said...

I think the Obama Phones are made in China. That's something anyway.

RJ said...

Great analysis, Cap. Unfortunately, China is only #2 on the list. The entity that holds the highest percentage of U.S. government debt is the Federal Reserve.

Anonymous said...

"Sadly, the military is not an investment. Matter of fact, it's quite the opposite. "

I view it as insurance, it's a necessary evil to protect you from things that might be worse, going to war is the opposite.

I.e. Having a competent military protects you from from other nations, it prevents things from happening (i.e. if the brits had had 1 fleet carrier, they could have avoided the Falklands war altogether, the Argentinians wouldn't even have tried.)

Once you use it for WAR though, it's like hemorrhaging money, war almost never pays in sum, but if you are clever you can cost shift to one party and come out smelling good.

Anonymous said...

"Great analysis, Cap. Unfortunately, China is only #2 on the list. The entity that holds the highest percentage of U.S. government debt is the Federal Reserve."

Federal Reserve doesn't count. That's not borrowed money that's imaginary money pulled from a magic hat.

Anonymous said...

" but a visit to one of our fine trailer parks, ghettos or barrios will show you the cycle of poverty these unfortunate children are condemned to."

According to the law of karma, the children are just as evil as their parents. Otherwise why would they have been born to such parents? This of course requires belief in reincarnation as well. BUt as you can see, if you accept karma and reincarnation, then NO ONE is truly innocent. All of those bastard children being born to useless parents and single mothers were evil people in their past lives. Otherwise they would not have been born to such horrible parents in the first place.

Fuck them all, no one is innocent. Let the whole thing burn.

Kristophr said...

The Chinese government knows full well what our crap paper is worth in the long run. So do the Russians.

They have been selling off T-bonds, and using the money to buy gold, assets, foreign property, and foreign mines.

A bunch of shadow bankers in Belgium were given ZIRP loans to take this worthless paper before it drove the value even further down.

The only reason they still have any of our paper is because they can't spend it fast enough. If they spent it any faster, the dollar will crash before they can get rid of all of theirs.

Kristophr said...


And since the Fed creates all dollars, that means the US Treasury is going the Zimbabwe / Weimar Republic route, and monetizing it's own debt.

Goober said...

Faithles Cynic;

You say that, but the lender is just as beholden to the lendee as vice versa.

We could decide to just not pay, too, and then what?

China would be in a world of hurt worse than ours...

The First Joe said...

Also: the UK didn't even need a supercarrier* to put off the Arg in the 80s. If Thatcher had kept a small fighter squadron, company sized RAF and Marine regiment detachments, plus one or two each of frigates and hunter/killer subs down there on "exercises" - Galtieri would've never made a move, and if he had, would've failed. As it was she withdrew EVERYTHING even planned to pull back the ice-breaker ship, and just left a dozen Marines. It was as good as an invitation, and then that asshole woman got to be hailed as a "brave" war leader after hundreds of young men died because of her piss-poor planning.

(*UK did have Hermes http://en.wikipedia.org/wiki/HMS_Hermes_%28R12%29 with Harriers and that was enough with the rest of Task Force to retake the Islands)

Anonymous said...

@Anonymous @ 1400 Hours:

Standing Armies are unconstitutional. The only type of military force allowed during peace time in the Constitutional Republic of the 50 United States is the Navy and the State Militias.

Congress deals with the former. Every able body male between the ages of 18 and 54 is part of the latter. These able body males must also train, provide for, and discipline themselves. See the second Militia Act of 1792(http://en.wikipedia.org/wiki/Militia_Acts_of_1792).

Technically, every member of the current United States Armed Forces is a traitor except for those in the Navy and the state militias (which there are). This is due to the fact there has been no formal declaration of war per Article One Section Eight of the Constitution since the end of WWII.

The Dick Act (https://en.wikipedia.org/wiki/Militia_Act_of_1903) changed this though. Modern leftism has only made it twice as worse, and has created a warrior and citizen caste system in the United States.

Usagi Yojimbo said...

There is some money in Medicare that does have a return on investment. It is in the form of training resident doctors in their specialties (including primary care, etc.) Medicare pays the residency program (the last I heard,) $100,000.00 per resident per year. The resident gets anywhere from $30-60k as salary, with another $30k for insurance and support, and the balance to treat the patient.

There are very few private and for profit hospitals that will have residents doctors train in their facilities. Anyone who accepts Medicare can, and most do. Medical school gives a lot of book knowledge, but not enough practical knowledge to make a competent doctor (it would add up to 8 more years in training.) And considering there is a doctor shortage in the country, the training of them to be full-fledged attending physicians has to be addressed.

I believe there is a waste in Medicare, but not all of it. One as to tackle the issue with a precise surgeon's knife, not a chainsaw.

Anonymous said...


Our debt to China is not as unsettling as it seems at first blush. China is in a state of "selective default" to US holders of old war bonds that are now worth nearly $1 trillion. More: http://www.foxnews.com/opinion/2011/08/26/its-time-for-china-to-pay-its-debts-to-united-states/

Captain Capitalism said...

OK, apparently the intent of this post was completley missed.

This post is NOT one of trying to analyze Chinese lending to the US government.

It's to point out to ANYBODY who is a creditor to the US precisely just what we piss away our money on and how futile it would be to think it would be paid back.

In other words it's a highlighting and mockery of the idiotic things and people we piss our money away on.

"Keeping the Yuan suppressed" is irrelevant to me.

finndistan said...

China is doing what the westernes do gooders inadvertently (really?) did and do to Africa.

Dump free money into the economy, so people lose the incentive to work for money, and all the connected ambitions go down the drain.

They are in for a very long game;

While westerners are texting while shagging in the toilet. (Goodbye America Blog)

Anonymous said...

The money's sort of a side effect (perhaps partly explains why some waste vaste amounts of it on mistresses and moutai)- the important thing was to keep Chinese factories open and a billion people in work. Also, the experience of foreign trade has allowed Chinese companies to develop and become more competitive internationally, an advantage that will outlast a change in the exchange rate. Well played?

Jamie said...



Trade Mark that,

Anonymous said...

It's not a horrible investment. They need to keep the American economy on life support otherwise the American people could no longer buy the cheap crap made in China and their exports would suffer and China would have economic troubles at home.

Lending money to the USA is also a method to peg their money to the US dollar and keep their currency artificially low to boost exports.

It's a method to inflate their own export economy. If the US debt would actually start to be repaid, this would hurt the Chinese exportations.

China doesn't need to be paid back, they can use the debt as a means to coerce better trade deals or demand hard assets such as landmarks and resources in exchange.

They also keep that debt as a weapon to completely tank the US economy and create social havoc by dumping all the US treasuries and tanking the dollar should there be a strong argument between China and USA.

Instead of criticizing social spending, you should ask yourself why spending is so high. Why can't people support themselves ?

Could it be because workers are hostages of the capitalist system which benefits only the rich and pays little to the workers and therefore their incomes must be subsidized by the government to keep them afloat ?

Stratospheric social spending and astronomical debt are huge indictments that capitalism isn't working and we need a better system.

Anonymous said...

Capn, your analysis is incomplete, since it only considers investment loans, and judges any loan on that basis.

From the lender's perspective, one might regard lending money to the US federal government more like consumer credit than investment credit. What matters when evaluating consumer credit is whether the borrower has sufficient pre-existing income sources to live up to its debt service obligations.

I wouldn't buy US government bonds, but I would lend money to a rich kid to buy cocaine and hookers if the interest rate was good and I had sufficient reason to believe his rich daddy would bail him out.

-Red Knight