China announced a huge stimulus package. I’m going to defer to Yves at Naked Capitalism and the post: China Announced $586 Billion Stimulus Plan. It’s worth reading.

I wanted to point out a critical difference between China and the US. The US has a huge national debt. We don’t have huge pools of money. China has obscene reserves, so their stimulus package doesn’t necessarily require massive borrowing. However, there seems to be a misconception about China’s money. It’s not just sitting in a can in the back yard. Remember all that debt we’ve been selling to China? Some of that debt is going to be sold on the open market to get cash to buy all of the materials that will go into the stimulus package. Chinese money is zero-sum. While this stimulus package is probably ultimately good for China (unlike the US, where we are simply selling our future), it probably isn’t a huge positive for the US. Of course, it depends greatly on how much China needs to buy that isn’t from China. If they sell US debt to buy Mid-East oil, the US is in for a world of hurt over the next two years. Treasury yields would be pushed up while the price of oil would climb. That would be devastating. Unfortunately, the details of the Chinese stimulus package (especially on a net basis) are difficult to analyze.

Good for China? Maybe. Good for the US? Doubtful.