September 22, 2008
Selling Out Taiwan To Finance The Bailout
With regard to the mother of all bailouts, my first question was:
Any future lenders will [..] ask for higher interest rates. Will they have additional conditions on top of those?
Who will finance Paulson's plan (or any other plan of this size) and under what conditions?
Today Bush called the prime lender to the U.S. and asked for the big loan. With polite language the Chinese revealed their 'additional condition'.
It is a nice, small but productive island Beijing wants to reunite with the fatherland for quite a while. Until now U.S. interests prevented that. But now things may have changed.
Chinese, U.S. presidents talk over phone about ties, U.S. financial turmoil
BEIJING, Sept. 22 (Xinhua) -- Chinese President Hu Jintao and his U.S. counterpart George W. Bush discussed bilateral relations and the financial upheavals in the United States in a phone conversation on Monday morning Beijing time.
Bush briefed Hu on the latest development of the U.S. financial market, saying his government was well aware of the scope of the problem, and had taken and would continue to take necessary measures to stabilize the domestic and world financial markets.
Hu hoped the measures would soon take effect and lead to a gradual recovery of the financial market, which he said not only serves the interests of the United States, but also those of China, and benefits the stability of the world financial market and the sound development of the world economy.
The Chinese president also praised the good momentum of the development of the Sino-U.S. ties in recent years in various areas.
He said China is ready to work with the U.S. side to intensify dialogue, exchanges and cooperation, and properly handle issues concerning mutual interests and of major concern, particularly the Taiwan question, in a bid to push forward the sustained and steady development of the Sino-U.S. constructive and cooperative ties.
Translated from diplo-speech: "Give us Taiwan and you'll get the loan."
Taiwan will not be the only 'additional condition' in this deal but for China it is the premier one.
Taiwan's GDP is some $700 billion, about the amount the U.S. needs for the current bailout. A good deal for Beijing even if the dollar falls and the big loans never gets repaid. A war over Taiwan would be more expensive.
Bush will now have to brief Congress leaders and will need to get some consensus within the U.S. foreign policy establishment on this issue. I doubt that China is dumb enough to hand the money over without having some bi-partisan guarantee.
Such a sell out of an area of interest to finance wars is not unprecedented. Bush can finally compare himself to Napoleon.
Will the U.S. agree to the Chinese condition and sell out Taiwan for the big loan it needs?
My bet is yes.
Posted by b on September 22, 2008 at 08:56 AM | Permalink
Well spotted. I'm sure you are right. What next for the rest of the bail-out ?
Posted by: gordon | Sep 22, 2008 9:17:12 AM | 1
I did wonder whether "Monday morning Beijing time" didn't mean poor old George was staying up past his bedtime, and wouldn't have been at his best. But it looks like Washington is 13 hours behind Beijing, so a call before before being tucked up would have been possible.
Posted by: Alex | Sep 22, 2008 9:54:14 AM | 2
The various deals and "bail outs" seem to be nothing more than stop gap measures to keep the multifaceted problems with the economy from free falling and imploding. Kind of like desperately fiddling with a parachute that refuses to open.
Posted by: James Crow | Sep 22, 2008 9:54:39 AM | 3
One can only hope the roll back of US global power is accomplished via such deals, however unsavory to some. The other way is WWIII. The Arabs will ask for something, too. Ironically, it is perhaps only the IMF that could properly manage the US 'transition.'
Posted by: d | Sep 22, 2008 10:04:27 AM | 4
"Bush briefed Hu on the latest development..."
Lol. Bush is incapable of "briefing" anyone.
Seriously though, that's awesome. d, agreed. If the result of financial catastrophe is that the US can no longer be a dick over Taiwan, Georgia, Venezuela, &cetera, so much the better.
(Standard disclaimer for types: No one's saying the Chinese government are "good guys".)
Posted by: Cloud | Sep 22, 2008 10:36:01 AM | 5
Well spotted. Bush would sell his wife on a whim. Taiwan is shaking in it's sandals.
Posted by: waldo | Sep 22, 2008 10:53:36 AM | 6
Excellent catch b. Probably no chance any discussion of little Napoleon's move will be discussed in the MSM.
Posted by: Hamburger | Sep 22, 2008 11:03:59 AM | 7
Excellent catch, B! I am so glad that-- as appears to be the case-- you don't have a life other than, on behalf of the rest of us, scanning the news for the really important developments.
If Quakers weren't against games of chance of all kinds I'd bet 'yes' but with some provisos. (Mainly, that it won't happen instantaneously and the real content of whats going on will likely be fudged for a while.)
Along with Taiwan they will probably over time request and may end up with the whole of the US military's obligations on the Asian side of the Pacific Rim, along with the big naval platforms used to service those... Japan-China relations will become very important. What will Japan and S. Korea do? Go along with their big continental trading partner, I expect.
But these things will not happen overnight. After the UK's big end-of-empire overstretch (Suez, 1956) was "called" by Eisenhower the Brits, French and Israelis withdrew from Sinai fairly rapidly but it took a further 14 years for Britain to wind down its permanent naval presence "East of Suez." This time, it might happen somewhat faster, but the inter-great-power readjustment of security forces and obligations in East Asia will probably still take the best part of a decade?
Re the Louisiana Purchase, two quick points: (1) It was financed by Barings Bank, which went belly-up due to unsecured trading just a few years ago; and (2) The landmass involved turned out to constitute a huge addition to (a multiplying of) the US's existing landmass; whereas the "addition" of Taiwan on its own is geotropically small-- though with the further coastal sequelae mentioned above could end up being pretty darn huge for China...
Posted by: Helena Cobban | Sep 22, 2008 11:09:59 AM | 8
If this happens, I can see the line forming to lynch Bush and Cheney. And it won't be Democrats, progressives, and liberals elbowing each other to be the first in line...
Maybe--finally--Republicans elites are getting some sense of how reckless, incompetent, and anti-American their beloved administration has been.
Posted by: JohnH | Sep 22, 2008 11:57:17 AM | 9
@Helena - Japan-China relations will become very important. What will Japan and S. Korea do? Go along with their big continental trading partner, I expect.
Chinese president pledges closer economic ties with Japan
BEIJING, Sept. 21 (Xinhua) -- China would deepen economic and trade cooperation and step up strategic and mutually beneficial relations with Japan, Chinese President Hu Jintao said on Sunday.
"China hopes the two sides would work together to enhance economic and trade cooperation, aiming at realizing mutual benefit and development," Hu told members of a delegation from the Japan-China Association on Economy and Trade (JCAET).
"China would work with Japan to enhance strategic trust, mutual contact and coordination in regional and international affairs, in accordance with the two countries' four political documents," Hu said.
An offer one can not refuse ...
And yes, the Taiwan issue will be solved slowly - in maybe two years. When the U.S. stops interference and pulls back its military protection, Chinese and Taiwan interest will merge. In the end Taiwan will become some special territory just like Hong Kong is today.
Posted by: b | Sep 22, 2008 12:16:21 PM | 10
Tell Paulson what you want to sell: Buy My Shitpile
Posted by: b | Sep 22, 2008 12:20:52 PM | 11
Amazing catch, b. You have "done it again." I won't bet against you: I know the Chinese are going to get SOMETHING for their consideration.
I don't expect my local media to mention what.
Posted by: Gaianne | Sep 22, 2008 12:47:53 PM | 12
Oh great, now the Bushies are willing to sell their souls to the devil just so that the Wolves on Wall Street are free to suck the life out of Uncle Sam.
And this tidbit about Sec. Paulson stinks to high heaven as well...
"Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country over 70 times." ***
Posted by: Cynthia | Sep 22, 2008 2:17:14 PM | 13
b, you never cease to amaze me.
#4 d, yep. bloodless coups are preferred.
Posted by: annie | Sep 22, 2008 2:27:49 PM | 14
Selling an ally/vassal for money is of course strategic madness as other allies/vassals will consider you unreliable and look for better protectors.
So yeah, fits perfectly with Bush crowds previous actions.
Posted by: a swedish kind of death | Sep 22, 2008 3:52:51 PM | 15
Oil spikes $25 a barrel on anxiety over US bailout
Ever saw a 20% increase of a commodity IN ONE DAY? No.
Explanation - the money that was (rightly) short U.S. financial stocks moved when shorting was forbidden. The next best play was oil. Here is the result. $5/gallon at the pump.
Posted by: b | Sep 22, 2008 3:56:01 PM | 16
Yep, you've it pegged, b. There's No Way Out. Each move tightens the noose. Approaching asphyxiation, erotic, or otherwise.
Posted by: Hang Em High | Sep 22, 2008 4:09:08 PM | 17
Explanation - the money that was (rightly) short U.S. financial stocks moved when shorting was forbidden. The next best play was oil.
So they all piled into into the contract that was expiring today??
What a bunch of nuts.
Posted by: Arf | Sep 22, 2008 4:30:27 PM | 18
I just read the piece about the US and India having a sort of unofficial alliance.
So this makes me wonder: Would India be able to bail out the US with 700 Billion Bucks?
If yes, India is likely to demand quite a lot less than China: Access to modern weapons, including (under the table of course) nukes plus some symbolic stuff like a permanent seat in the UN. Maybe some preferment of India over other low-wage countries in respect to tariffs etc.
From the Indian point of view this would have some advantages: First of all annoying China while appearing innocent, then there is the issue that China is currently pointing a lot of its army toward Taiwan, which could be transferred to other neighbors like the one in the soutwest, and this would cement kind of an alliance with what is still the mightiest military power right now. (And it would put some pressure on Pakistan as well).
Posted by: No So Ana | Sep 22, 2008 5:11:09 PM | 19
@Hang Em High
Monday, September 22, 2008
A Nation of Masochists
I have concluded that Americans, who pretend in public to be straitlaced, are in fact rabid masochists addicted to whips, black leather and the application of fists. It turns out that large numbers of people throughout the world are accidentally asphyxiated every year because they need to be choked for maximum pleasure.
The diagnosis of national masochism is the only thing that can satisfactorily explain the poll numbers in the presidential race.
But, well, if you are determined to bend over on November 4, at least I hope you enjoy pain. In that case, you are going to be ecstatic.
Posted by: constant | Sep 22, 2008 5:59:02 PM | 20
b, thanks for that "buy my shitpile" link. I think it should be posted over at sic semper tyrannis to give it wider distribution.
Also thanks for this thread.
Posted by: rjj | Sep 22, 2008 6:23:52 PM | 21
Jinx.....and I promise I never read that Juan Cole piece. Synchronicity at its finest. Obviously, Juan and I share a precisely articulated perception of this psychotic Pollock rendering on canvass.
Posted by: Hang Em High | Sep 22, 2008 7:25:06 PM | 22
Why would we need China to "finance" the bailout when that $700 billion is going to be swapped for CDOs? Citigroup, Wachovia etc will be the ones "buying" (that is, bartering for) those bonds.
Posted by: Matt | Sep 22, 2008 8:36:43 PM | 23
Hmm - Emptywheel ripped my find off via Helena Coban's site.
While Helena links back to me (thanks!), emptywheel does not.
Posted by: b | Sep 23, 2008 9:46:45 AM | 24
maybe moon is to radical for emptywheel to link to. it's rude tho.
Posted by: annie | Sep 23, 2008 9:54:52 AM | 25
b, is that 'particularly the Taiwan question,' link supposed to work? it is showing up on my screen in a different, bolder red, but not functioning.
Posted by: annie | Sep 23, 2008 10:03:56 AM | 26
Citigroup, Wachovia etc will be the ones "buying" (that is, bartering for) those bonds.
the Treasury is going to have to go to the bond market and borrow the money for the MOAB (or as some have already dubbed it, the Taxpayer Anal Rape Program). Since Americans don't save nearly enough to buy all those bonds -- not without sending interest rates into the stratosphere -- the bulk of the financing will have to be provided by our foreign creditors, such as the central banks of Japan, China and the major oil exporting countries.
The problem, of course, is that our creditors are already into us for a cool $13 trillion (about 90% of US GDP) and have shown a growing reluctance to lend us more (by using their export earnings to purchase US Treasury bonds and other dollar-denominated assets) as the crisis has worsened.
Posted by: annie | Sep 23, 2008 10:22:25 AM | 27
Money = Power, and the US has been exporting a lot of the former to China, so the latter is there too. Money must roll, so power will be used.
The other area in the world where now needed money money is, is where the oil is coming from. Now I don't know what strings will be attached by the Arab world in exchange for help, but someone looking for an business opportunity in these troubled times might consider the clean underwear industry in Israel.
Posted by: DharmaBum | Sep 23, 2008 10:41:05 AM | 28
'particularly the Taiwan question,' link supposed to work?
No - its just colorized.
Posted by: b | Sep 23, 2008 10:55:03 AM | 29
From the FT today:
"The US plans to sell $6.5bn in weapons to Taiwan as part of a long-awaited package intended to boost the island’s ability to defend itself.
The Bush administration on Friday notified Congress of the proposed sale, which includes Patriot missiles, Apache helicopters, submarine-launched Harpoon missiles, Javelin anti-tank missiles and spare parts for F-16 fighter jets."
Posted by: d | Oct 3, 2008 10:45:55 PM | 30
Doesn't appear that Taiwan is being sold down the river after all... China might just be pissed off enough about that to sell their melamine and lead-tainted trade goods to other markets. Bad news for Wal-Mart.
China cancels military contacts with US
Posted by: Monolycus | Oct 7, 2008 12:03:25 AM | 31
If Bush sells Taiwan to the commies, that just proves he was never a True Conservative in the first place.
Posted by: Kill Bristol | Oct 25, 2008 3:13:33 PM | 32