Some have recently expressed concern that the People’s Republic of China is buying US Treasury bonds in an effort to influence American policy. This is a serious problem, but not one which cannot be corrected. The advances made by the Chinese economy in recent years are alarming, but not insurmountable. In fact, China’s heavy stake in US Treasury bonds offers us the opportunity to, if necessary, wage the economic equivalent of thermonuclear war against the Chinese Communists.

Let’s step back for a second. Just how much does the United States owe? At the present time the entire US public debt stands at roughly seven trillion dollars. About 2.1 trillion dollars of that is held by foreign governments and investors. That percentage is seemingly increasing with time as foreign governments (especially the Chinese) continue to purchase American securities. While no comparable figures are available for most foreign nations: in 2001 China’s public debt was estimated at just 3% of its entire GDP so, in other words, the ratio of Chinese public debt held in the United States to American public debt held in China is massive.

So, what exactly do I propose? Simple: if China attempts to use its financial powers to interfere in the US economy, influence US policies, or do anything else harmful to the United States or beneficial to China, then the United States should repudiate every single cent of US public debt held by the Chinese government, Chinese businesses, Chinese citizens, or residents of China. In August of 2003 the Chinese were estimated to hold some $124 billion in American securities. That, of course, only counts those securities that we know about and does not consider the rapid rate at which the Chinese have been accumulating Treasury bonds.

The People’s Republic also believed to hold something like $400 billion US Dollars worth of foreign currency reserves which, of course, it could also use to influence the US economy or world markets in various ways.

US-Chinese trade for this year should probably total something like $200 billion dollars. Of that, roughly 1/6 would constitute US exports to China, with the rest being made up of Chinese exports to the United States.

In other words, while it might look like China has the US backed into a corner: it only looks that way. Depending upon how you read it, the Chinese GDP is either $1.2 trillion a year or $6 trillion a year. The vast disparity in figures is the result of a concept called ‘purchasing power parity’. The nominal GDP (the $1.2 trillion figure) is calculated by adding up all production in local currency figures and converting it to US dollars. The PPP figure, on the other hand, is calculated by assuming that goods and services produced in one country have a real value equal to those in another. In other words, for most purposes, neither figure is quite accurate.

However, when we are discussing matters such as trade and the holding of foreign currencies and bonds, the nominal figure is much more relevant because all of these tasks either require or use foreign exchange.

Thinking about this, consider just what the loss of both the $124 billion in US Treasury bonds and a cut-off of trade with the United States (which, one way or another, would inevitably follow a US repudiation of all foreign debt owed to China) would do to a developing Chinese economy and, in particular, to China’s international economic position. The Chinese would be very lucky to survive such a move with only a lengthy economic depression. More likely, we would see famine, riots, and political disorder in China. The entire Chinese ‘new economy’ would disappear virtually overnight, making instant beggars of those who once aspired to mount a challenge to American power.

Equally important would be the neutralization of all Chinese foreign currency reserves. This, of course, is a more difficult task. It would, for example, be virtually impossible to prevent the Chinese from using whatever US banknotes that they have on hand to make purchases. However, I can’t imagine that the Chinese hold all that much in actual, hard, American cash at any given moment.

The answer might be to time any moves against China with a surprise return of the US Dollar to the Gold Standard. This would be necessary, in part, to stem any loss of global confidence as a result of American economic actions against China. All Americans (and nationals of friendly foreign nations) could be given a fixed amount of time to exchange all of their old American dollars for new Gold-backed dollars, with all US funds originating in China being ineligible for transfer. With stern enough measures, I would expect that the Chinese would be unable to launder more than a small fraction of their massive reserves. Foreign banks (or nations) which collaborate with the Chinese, knowingly or unknowingly, would share in their fate.

It would be of high importance that any such US move comes as a “bolt out of the blue” in order to prevent the Chinese from launching a pre-emptive strike. The actual implementation of these policies might be accompanied by a number of covert cyber-strikes designed to shut down Chinese banking systems and cause other problems, thereby exacerbating the problems.

Naturally, it would be important to spin these moves as being ‘defensive’ in nature. This much, I think, would be rather easy. After all, in a very real sense, they are. The rapid growth of the Chinese economy is a direct threat to America’s position as the world’s only Superpower. Given China’s accumulation of US Treasury Bonds and reserves of US dollars, the strike could be presented as having been made to head off a Chinese strike against the US economy.

I am not foolish enough to think that this would not have major economic effects in the United States. Certainly, it would cost a great many companies a great deal of money and possibly push the US economy into a recession. I’d take it as a given that the Chinese will seize the assets of US companies in China. For this reason, any move against the Chinese would have to be preceded by freezing all Chinese assets in the United States, and seizing them as soon as they move against US assets. As well, any such move would have to be accompanied by the strongest possible assurances to other American trading partners that such action is not pending against them.

Now, I’m not advocating that any of this take place at the present time. After all: it would probably, in the short term at least, cost a fair number of American jobs. However, it’s good to have such a plan in America’s back pocket: and for the Chinese to know of it. Moreover, I would greatly prefer to endure the short-term dislocations caused by such a strategy than I would live to see the Chinese become more powerful than the United States.

China is our enemy. It might suit our short term purposes to deal with them for the present time, but we must never forget: they are our enemies. Better to die a thousand deaths than live in a world ruled by the Chinese. If we must, someday, pay an economic price to destroy the Chinese threat: so be it.

Of course, I understate the difficulties of such a strategy. Anything which destroyed the Chinese economy would also severely damage the economies of most of China’s neighbours. But that’s a risk that I think is worth taking. If we cause damage elsewhere: neca eos omnes, deus suos agnoscet.

No American problem is so severe that it cannot be dealt with via appropriately harsh and brutal action. If the Chinese want to mess with America: let them. When they day is over, it shall not be America’s blackened and distorted corpse that is rolled into a mass grave.