That China loaned money to the US in order to keep the vendor finance scam running is obvious. In other words, Chinese purchases of US treasuries were/are clearly explainable in money terms which is why Mish "gets" that. But Japan isn't in the same position as the US relative to China and so when China buys Japanese debt it fails to register with Mish.
So here's The Economati view on the situation. The whole world is a debt Ponzi which will eventually fail. I can't say when but I can say that it will fail. I believe that "unexplainable" or "stupid" moves by the big players are most likely setups/self positioning for after the big collapse. When the collapse happens we can expect that the US will default in some form or fashion. In order to avoid outright default it will probably inflate massively and potentially hyperinflate. Either way does not matter because the net will be that the US' ability to bully everyone with the power of money will collapse. The US will not be in immediate danger of being invaded because of strong residual military and because we control the NorthAm continent which is protected by moat Atlantic and moat Pacific BUT neither will we be in the position to project power into the far east. We simply will not have the money to do it. Our military will have to downsize massively as we begin, once again, to live within our means.
"Stupid" China knows it will not be repaid in kind from the US and that there is no immediate retaliation possible. The US will claim that the Chinese losses are "a global problem" and justify its way out of long term in-kind payments (i.e. actual repayment of debt). So China can just sit there waiting to become the global patsy or it can execute its own self interest strategy.
Given that China is far from stupid, it looks to me that this strategy is to get the big players around it to owe it. After the big collapse, some of those players will then run to China for protection under the Chinese military umbrella (Australia?) while other debtors get invaded and absorbed by China. Japan is looking particularly weak right now. Perhaps China is buying worthless Japanese debt knowing that it will eventually default at a time when the US is too weak to defend Japan from invasion. This is what I would do if I were China and I think there are thousands of Chinese strategists who have been thinking about this for years now.
Think about it:
- Japan is broke and in massive debt.
- Japan has something worth invading for: technology and manufacturing prowess
- The final analysis will show this is better than invading for oil!!
- Japan has aging demographics. Those old people might benefit from a new master in charge.
- Japan has no military to speak of. The Chinese could walk right in unless the US or someone else defended them.
- The likely defenders would be the US and NATO, all of which are going broke.
- Japan invaded China during WW2 and treated Chinese badly and I mean world class badly. Chinese warmongers have not forgotten this and probably want to get even. Nobody has forgotten anything on that score. Nobody.
- Japanese default on treasuries would give some moral high ground for invasion. Chinese could even declare the Japanese government "irresponsible, reckless, and incapable of leadership". They could claim that Japanese people will be better off under Chinese rule. Once their foot is in the door then all bets are off and the abuses/WW2 payback will begin.
So, Mish, perhaps there is more to the Chinese purchase of worthless Japanese debt than meets the eye. If the Japanese had any sense they would not sell to the Chinese. They would expose the move early on for what it not unlikely is and they would begin building their military again. They would ask for money from the US and Euroland to do this with and they would justify the buildup as the creation of a post collapse military buffer between China and the west.
