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China doesn't have to print money to buy US debt; it has massive amounts of foreign currency reserves from the trade imbalance between the countries with which

China doesn't have to print money to buy US debt; it has massive amounts of foreign currency reserves from the trade imbalance between the countries with which it purchases treasuries. Something to the tune of $1 trillion USD. So, in essence, the US is printing money to provide China with treasury assets. EDIT: Also, I guess you could qualify it as getting free money, but in fact it's money that has already been spent, which is the federal deficit. So what happens when China decides to stop buying that debt? Then we no longer have the money to cover our over-spending. That's the issue. The economic argument lies on whether China will ever consider the US a "bad bet" and stop buying debt (it has, in fact, slowed) or if the two countries are so intertwined as creditor-debtor that both have to continue playing the game in perpetuity.

truthout 15y ago
China HAS to print to keep the yuan at parity with the USD. China has already stopped buying US debt and are diversifying it's holdings. If China took all fo the trade deficit, which is close to 300b yearly, and bought US treasuries with it, it may supress the valuation of the yuan. Since it's not the case and the yuan strength is not fixed to US trade but it's global trade, the yuan would still likely appreciate significantly. So in fact China must print yuan to sustain parity with USD otherwise the yuan would rise in value. It's holdings of foreign debt and currency only bolster the stance that the yuan is undervalued. The only direction the yuan has gone in the last 10 years is up. When the Chinese alter the USD peg. The yuan is not floating.