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Sure, I don't have a bunch of time but I can try and reiterate some of the economists' positions that I have read (I am not a professional economist). It seems

Sure, I don't have a bunch of time but I can try and reiterate some of the economists' positions that I have read (I am not a professional economist). It seems that one of the primary reasons for China's purchase of such a large share of US Treasury bonds (a little over 10%) has been to artificially lower the price of the Renminbi as compared to other currencies. This has become almost the cornerstone of the Chinese manufacturing economy -- because the Renminbi is artificially deflated compared to Western currencies, manufacturing is very cheap in China and their export status increases greatly. One of the problems with selling those bonds is that the reverse would happen: the Renminbi would shoot up, devaluing Chinese exports greatly. In contrast, the United States would experience massive devaluation of the dollar. This would produce negatives and positives, the positives being a large increase in the value of US exports. In addition, dumping U.S. assets would cause the value of their own dollar holdings to decrease, causing further problems. Simply enough, the amount of U.S. Treasury bonds/securities that China holds at the moment is enough to bankrupt its own economy if they decide against it. In other words, China holds a good bargaining position right now, but cannot fully backup the threat without destroying their own reserves and manufacturing base. I don't have time to find the links right now but some very interesting economists on this issue are the Brookings Institute, Paul Samuelson (MIT), and Paul Krugman (Princeton).

dandelany 17y ago
Right, but they're not threatening to sell their treasury notes, they're continuing to hoard them, which keeps Chinese exports artificially competitive, which is a problem for the US. China would have a problem if they wanted to sell, but they don't; they're content to hold our debt, collect interest payments, and use the leverage to manipulate their currency. See also: http://www.nytimes.com/2010/03/15/opinion/15krugman.html http://www.nytimes.com/2010/03/15/opinion/15krugman.html
deleted 17y ago
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netcan 17y ago
When people scenario-monger about economic "attacks," you mostly find that they forget to consider the other side's position. Cutting off oil production (Iran, UAE, Venezuela, Saudi Arabia) is something you hear every so often. These are all countries where oil is most of the economy, virtually all of the exports and the state/king directly controls it. Take Saudi Arabia. Apart from continuing to directly feed the public with grants, subsidies and giveaways, Saudi Arabia has tens (or maybe even hundreds) of thousands of royal family members, religious elites and tribal leaders relying on money from selling oil. Cutting off oil is impossible. Sure China has the theoretical ability to hurt the US economically. But the US has an even bigger economy and just as many ways of pinching back. Besides that, there is no such thing as a pinch that doesn't hurt the pincher.

dandelany 17y ago

Right, but they're not threatening to sell their treasury notes, they're continuing to hoard them, which keeps Chinese exports artificially competitive, which is a problem for the US. China would have a problem if they wanted to sell, but they don't; they're content to hold our debt, collect interest payments, and use the leverage to manipulate their currency. See also: http://www.nytimes.com/2010/03/15/opinion/15krugman.html http://www.nytimes.com/2010/03/15/opinion/15krugman.html

deleted 17y ago

[deleted]

netcan 17y ago

When people scenario-monger about economic "attacks," you mostly find that they forget to consider the other side's position. Cutting off oil production (Iran, UAE, Venezuela, Saudi Arabia) is something you hear every so often. These are all countries where oil is most of the economy, virtually all of the exports and the state/king directly controls it. Take Saudi Arabia. Apart from continuing to directly feed the public with grants, subsidies and giveaways, Saudi Arabia has tens (or maybe even hundreds) of thousands of royal family members, religious elites and tribal leaders relying on money from selling oil. Cutting off oil is impossible. Sure China has the theoretical ability to hurt the US economically. But the US has an even bigger economy and just as many ways of pinching back. Besides that, there is no such thing as a pinch that doesn't hurt the pincher.