I am currently working under the hypothesis that the US's international success (I know many of you won't want to call it that), recently, has been because of two things: 1) the Saudi Arabian petrodollar mechanism and 2) the china production & credit scam. These two things give the US all of the leverage that it needs in the world of international political economy. (I don't want to leave out the fiat nature of the US dollar, but I want to include it in the petrodollar scheme. I also am going to include the US debt dollar - the dollars needed by countries to pay back loans to WB and IMF - in the petrodollar. So more accurately it would be called the US dollar hegemony, but that is what I have to build towards the understanding of.)
The US setup the petrodollar arrangement in 1973 (I think, or formalized it at least) and the US started with the "Chinese deal" (which we see the other end of the specturm of today) shortly after 1972, yes?
The "Chinese deal" is just what I am calling the relationship where at first the US pumped its own capital and credit into China to build up its economy as a hedge to the USSR (China becamse a US ally against the USSR because of this), simultaneously denying China independent energy sources, which has been uber-successful, but that has now turned into the situation where China now loans the US money in order to buy their production goods as a means of sustaining the growth model of the past 40 years.
And then, everyone is somewhat familiar with the petrodollar system, but I do need to know when it was started...
I don't want to make Nixon out to be the most goddamn successful President (mercantilist) in US history, but I'm pretty sure he is.
So, when did China start buying US bonds in bulk and when did the US-Saudi Arabia petrodollar arrangement begin exactly?
It depends what you mean by "bulk".
Officially China started buying US bonds at the end of 1984. However by December 1996 China held as much US treasuries as Spain (46,5 billions). Over the next two years they added 1,2 billions. Spain added 2,8. By contrast Germany added 20 and Japan 10,5.
However between December 1998 and December 2002, Chinese holdings of US "government" securities (which include treasuries, bonds issued by US federal entities like Freddie Mac and local government bonds) literally boomed, going from 47,7 billions to 181 billions. The next year China added another 74 billions and 86 in 2004. 2005 is the year when things really start to heat up, as Chinese holdings reached 527 billions, a 54,45% increase in just one year. From that year it's a crescendo worthy of Rossini until the numbers peaked at 1,727 trillion in 2011. It appears this was the apex of the curve, as between 2011 and 2012 Chinese holdings of US securities actually dropped by 84 billions, a break in the record. Right now the total is split so 2/3 are treasuries and the remaining 1/3 is made up of other "government" securities: I suspect if it weren't for China's largesse California would be bankrupt already.
What can we make out of this? Until 1998, China held less US debt than Spain. Then things started to get interesting and spiralled out of control in 2005. A couple of things conspired to this growth.
The first is China saw a massive resurgence in State intervention after Deng Xiaoping died (1997). The Little Helmsman had always favored a long and slow transition towards a freer China. His heirs had none of his patience. They wanted the country to get rich, and fast, mostly as a way to cut the Maoist wing of the Party at the legs and to buy social peace. Always remember Chinese rulers fear uprisings like the plague. When China goes in flames it's usually a bloodbath.
The second is the US government really stepped on the pedal of debt between the Clinton and Bush II presidencies. Buying US debt was a quick way for China to both prop up a faltering US dollar and make use of the immense foreign currency reserves they were building up due to their merchantilist politics.
Now if you'll forgive me I have to go to bed: it's past 1 AM and I haven't slept a lot the past few days...
Wow, thanks. What exactly was happeneing with U.S. China trade from 1972-1984? Would you suggest any sources (hopefully academic) that this information can be gleaned from?
I'll try dig up something about the '70s but here's an official study of the US-China trade in the 1980-2010 period: http://fpc.state.gov/documents/organization/155009.pdf
Again you'll notice things really started to heat up around 2005.