China isn't just about the money

So You Thought The Only Thing That We Needed China For Was To Buy Our Treasury Debt To Fund Our Massive Deficits? Wrong!

As the largest holder of U.S. treasury debt, the Chinese government has an enormous amount of financial leverage over not just the United States, but the rest of the world as well. As of June, China held in the neighborhood of $850 billion of the approximately $4 trillion of U.S. treasury securities being held by foreign entities. Any buying moratorium or sudden selling spree would push U.S. interest rates higher, throwing a monkey wrench into an already questionable economic recovery.

China And Rare Earth Elements or REE

Critical for industrial and commercial production of a variety of products, rare earth elements or REE are comprised of 17 metallic elements that go into the production of things as disparate as computers and the refining of petroleum.

China, which we know has a quasi stranglehold on us financially, produces about 95% of the world's supply of REE. While considered to be a "friend" of the United States, China, along with some less than friendly sources for our oil needs makes the U.S. far to dependent on other countries for critical raw materials. This fact is definitely not in the best interests of the country. The discussion of the need for the U.S. to utilize every potential source of domestic oil reserves is for another time.

Japan, in a territorial dispute with China and holding a captured Chinese sea captain, faced a stoppage in Chinese exports of REE to them over that dispute. Japan is the largest importer of REE from China, and any prolonged or even temporary stoppage of these elements would be economically devastating to them. After resolving that crisis by releasing the captain, Japan once again has unlimited access to these materials from China.

What this episode makes very clear however, is that China is more than willing to flex its muscle and use any leverage at its disposal in crisis resolution. Japan found this out, and the United States, currently beholden on the Chinese for funding, particularly as our deficits continue to explode, may at some face the wrath of China as well.

The old saying goes that you should keep your friends close and your enemies even closer, but I don't think the intention was to become dependent on your "enemies" for your economic well being.