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I don't understand why China (and Japan) did get into this so lightheartedly. I mean, the devaluation strategy applied by the US has been obvious for so long no

I don't understand why China (and Japan) did get into this so lightheartedly. I mean, the devaluation strategy applied by the US has been obvious for so long now. I'm actually surprised to not see some kind of "bank run".

mmanfrin 13y ago
Where's a better place for they to put their money/all those dollars coming in from exporting to the US?
- seanmcdirmid 13y ago
  This. China buy t-bills because they really have no other safer/better options. That they basically get a negative interest rate at that (due to inflation) is just a cost of not having the money burning a whole in their country's economy.
- nordsieck 13y ago
  The real reason is that China has, for a long time (not any more... sort of), had a policy of pegging the Yuan to the Dollar. In order to do this, they needed to buy a lot of Treasuries.
  - seanmcdirmid 13y ago
    Right. If China didn't buy treasuries, they would have no choice but to strengthen their currency, and since their development plans are export-oriented, this would be really bad. Japan does the same thing less effectively, by the way, even if the Yen is fully convertible. The gov has tried to get away from a pure dollar peg, they've even played around with Euros, but today I think they are strictly back on a dollar peg.
  - marcamillion 13y ago
    Even if they didn't peg to the dollar....where else are they going to put all that cash? They already own as much of the other commodities as they can get their hands on. Ultimately, they want to protect the surpluses they have accumulated. What better way to do that than put it in the safest security in the world - well to date anyway. Sucks to be them though....they have no choice but to keep buying Treasuries. This is the point that many people miss. Yes...America is indebted to China...but it's really China that is more at the mercy of America. If they leave their cash in cash, inflation will kill them over the long term. They can't realistically own 100% of all the commodities...and if they did that would be self-defeating because the price would plummet over time because people would find something else to replace the scarce commodities so their holdings would become worthless. So their prudent management of their economy has given them a cash pile that no one else can rival, and has put them at the mercy of the largest debtor nation on the planet.
    - XorNot 13y ago
      Its the old "if you owe the bank $10,000 you've got a problem...if you owe the bank $10 million the bank has a problem".

mmanfrin 13y ago

Where's a better place for they to put their money/all those dollars coming in from exporting to the US?

seanmcdirmid 13y ago
This. China buy t-bills because they really have no other safer/better options. That they basically get a negative interest rate at that (due to inflation) is just a cost of not having the money burning a whole in their country's economy.
nordsieck 13y ago
The real reason is that China has, for a long time (not any more... sort of), had a policy of pegging the Yuan to the Dollar. In order to do this, they needed to buy a lot of Treasuries.
- seanmcdirmid 13y ago
  Right. If China didn't buy treasuries, they would have no choice but to strengthen their currency, and since their development plans are export-oriented, this would be really bad. Japan does the same thing less effectively, by the way, even if the Yen is fully convertible. The gov has tried to get away from a pure dollar peg, they've even played around with Euros, but today I think they are strictly back on a dollar peg.
- marcamillion 13y ago
  Even if they didn't peg to the dollar....where else are they going to put all that cash? They already own as much of the other commodities as they can get their hands on. Ultimately, they want to protect the surpluses they have accumulated. What better way to do that than put it in the safest security in the world - well to date anyway. Sucks to be them though....they have no choice but to keep buying Treasuries. This is the point that many people miss. Yes...America is indebted to China...but it's really China that is more at the mercy of America. If they leave their cash in cash, inflation will kill them over the long term. They can't realistically own 100% of all the commodities...and if they did that would be self-defeating because the price would plummet over time because people would find something else to replace the scarce commodities so their holdings would become worthless. So their prudent management of their economy has given them a cash pile that no one else can rival, and has put them at the mercy of the largest debtor nation on the planet.
  - XorNot 13y ago
    Its the old "if you owe the bank $10,000 you've got a problem...if you owe the bank $10 million the bank has a problem".