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What you're saying doesn't make sense. China buys T-bills to keep the yuan low and exports high, not to do us any favors. If they stopped tomorrow it would prob

What you're saying doesn't make sense. China buys T-bills to keep the yuan low and exports high, not to do us any favors. If they stopped tomorrow it would probably damage their economy at least as much as ours, and certainly wouldn't make it impossible for the U.S. to pay its obligations: After all, those obligations are something like 99.9% dollar-denominated, and the government owns the printing presses. Interest rates would likely rise from their current close-to-historic-lows, but that's nothing that would scare the U.S. from defending one of its closest and most important strategic allies. I'm really curious how you get from "China owns 8% of U.S. government debt" to "The U.S. would have to pause before defending Japan against Chinese territorial aggression." Japan, by the way, owns 7% of U.S. debt.

gaius 13y ago
8% is plenty enough to move the markets. You are assuming that China is a rational actor; it is not (nor is any country). It is a country well used to making sacrifices for what it sees as it's equivalent of Manifest Destiny. And they really, really want those islands...
- twoodfin 13y ago
  The U.S. and China confronting each other over some islands would move the markets dramatically regardless of how China decides to allocate their foreign currency reserves. I don't think there's any evidence that U.S. strategic planners consider the economic impact of defending the interests of our allies (particularly one as critical as Japan) as more significant than a third or fourth order effect. And as I alluded to: If China's 8% is so influential on our strategic actions, why isn't Japan's 7% almost equally so? It's not as if the Japanese government couldn't pick up the slack if China started reducing its position in T-bills. There's likely no reason for them to, because unlike you, I don't believe foreign bond holdings represent any kind of serious lever in international relations.

gaius 13y ago

8% is plenty enough to move the markets. You are assuming that China is a rational actor; it is not (nor is any country). It is a country well used to making sacrifices for what it sees as it's equivalent of Manifest Destiny. And they really, really want those islands...

twoodfin 13y ago
The U.S. and China confronting each other over some islands would move the markets dramatically regardless of how China decides to allocate their foreign currency reserves. I don't think there's any evidence that U.S. strategic planners consider the economic impact of defending the interests of our allies (particularly one as critical as Japan) as more significant than a third or fourth order effect. And as I alluded to: If China's 8% is so influential on our strategic actions, why isn't Japan's 7% almost equally so? It's not as if the Japanese government couldn't pick up the slack if China started reducing its position in T-bills. There's likely no reason for them to, because unlike you, I don't believe foreign bond holdings represent any kind of serious lever in international relations.