Why Should China Keep Buying US Treasuries to QE Infinity (and beyond)?!

In Sanskrit, there is a saying:

विनाशकाले विपरीत बुद्धी.

Literally translated, it means: When faced with insurmountable odds and doom, human beings as a rule start unintentionally behaving in an illogical/irrational manner.

In the domain of macroeconomics, history books are littered with Mongol, Roman, Ottoman, Byzantine, British and various other mega-empires crumbling to dust as an application of this rule - either shooting themselves with self-inflicted warfare and/or combinations of other reasons.

[Slight digression. Advance apology to those unable to read Devanagari script: But I'm not going to bother transliterating the Sanskrit idiom above into Latin alphabet. Given my long multilingual and semi-formal/informal linguistics background, I've never personally been a fan of alphabet transliterations, since it's almost always impossible to retain identical effect while moving across random alphabet sets. If anyone has a burning desire to attempt transliteration, be my guest and attempt it with Google or various other online tools. Anyway, enough of this linguistic detour.]

Having set the stage with that wise saying naturally leads the flow into following headline:

QE Infinity? No end in sight for money printing

[...] Federal Reserve easing will go full-throttle until at least March. But even that thinking may be too aggressive.

[...] $85 billion a month of so-called money printing would continue as long as the Fed and Chairman Ben Bernanke deemed necessary.

In a recent CNBC interview, Chicago Fed President Charles Evans said there was plenty of room left for more easing and plenty of reason to do it considering the still-uneven pace of economic recovery.

Until now, I've been extremely diligent to keep this blog's language family friendly clean, and devoid of offensive words. But quite seriously, after reading that Keynesian pseudo-economic diarrhea, is it even possible to stick to family friendly vocabulary? Seriously?!?!? Is this the garbage logic these one-trick pony pseudo-economists can come up with for cutting down more and more trees for worthless paper and keep using it to print worthless toilet paper "money"?

Actually, I take that part about "worthless" paper back. At times like these, it becomes imperative to quote that great thinker Ludwig von Mises:

Government is the only institution that can take a valuable commodity like paper and make it worthless by applying ink.

Or in our situation, substitute the word "Government" with "Central Bank".

It might be easy to be a blog critic without holding controlling reins of enormous monetary policy. However, (to borrow American Football vocabulary) this isn't exactly armchair quarterbacking of events past being talked about. This is discussion of near future - and coming full-circle to that Sanskrit idiom - impending doom and gloom.

Even for an exercise of empty academic interest, one actually begins wondering about so-called logic within this illogic. I don't care where in the universe one travels, to distant solar systems within our own galaxy, distant galaxies or other empty voids unknown. But to the best of my knowledge and critical thinking, basic laws of mathematics and physics still apply across the entire universe. In the empty academic exercise, one actually begins to wonder if the pseudo-economists are intentionally setting things up for a guaranteed mathematical collapse. Or is that kooky conspiracy craziness? Nah, let's not even go there. It's been ages since terms like crazy kooky conspiracy were used in the domains of mathematics and physics. And the fundamental macroeconomics being discussed here is not exactly rocket science.

Only semi-rational analogy I can think of for this situation is, it's like a knot that keeps tightening further, the more you attempt to loosen it. Federal Reserve have gone so far down a precarious road that any attempts to take a U-turn seem even more precarious than continuing further down the dangerous road. This situation is absolutely as mind-blowing and surreal as it sounds reading these words.

This leads to a nice segue into next headline about "bury head in the sand ostriches" behavior of today's stock market conditions, in light of above pseudo-macroeconomic diarrhea.

Investors ignoring risk of China Treasury selling AND slowdown in China Treasury buying

Investors are failing to factor in the very real risk of China scaling back on its U.S. government debt holdings, economist Stephen Roach told CNBC.

"Everyone thinks interest rates are going to stay low in the U.S. because the Fed is in the control room... but the Chinese own about 11 percent of the Treasury market right now, and as they start to reduce their purchases of dollar-based assets... [this] will mean higher interest rates," he told CNBC Asia's Squawk Box.

I didn't think, I needed to listen to someone with an official "economist" title for such basic common sense. This point is a bit of a rehash of a recent post in this blog. But how can you ignore such very important and rational point in this context?

Every passing day, my opinion keeps becoming firmer and firmer that: Macroeconomics, monetary and fiscal policies may be the only disciplines which are easier to teach to kindergarten aged children than adults.