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  1. July 31, 2011 10:24 pm

    Thanks Patrick for this enlightening statement. I was one of the “inundaters”, so I am glad to understand how things really work.

    I say this because I have read some commentators who draw the conclusion that because China continues to buy US bonds, that this is a sign that the Chinese are confident that the US economy is strong – a worthwhile investment. But your argument is that the Chinese have no choice, regardless what they really think of the health or otherwise of the US economy.

  2. Anon permalink
    July 31, 2011 11:29 pm

    I swear, I think you and Michael Pettis are the only commentators who really understand this dynamic… Obviously, there are lots of people who understand it–in China, the US, and elsewhere–but for some reason they all seem to be silent, while the commentators you correct here just keep getting louder. I, for one, may be extreme in thinking that China’s currency policy is among the world’s 5 most globally harmful economic policies, but there are far too many who continue to say that it’s harmless and that it’s actually the US that is responsible for the consequences–quantitative easing, irresponsible “profligacy”, etc. Please keep shouting through every medium possible…

  3. Hua Qiao permalink
    August 1, 2011 8:41 am

    Of course, mainlanders will say that the US blocks the purchase of “goods” that China wants most such as sensitive technologies and companies like Unocal in strategically important industries. This, IMO, is a smoke screen.

    BTW, since China must import many raw materials, doesn’t the RMB, which is tied to the weak USD, depreciate vis-a-vis other currencies (Aussie Dollar and Brazilian Real), making input costs more expensive and creating a drag on export manufacturers competitiveness?

  4. Canuk permalink
    December 5, 2011 11:27 am

    I’ve read from a Forbes article that this codependency isn’t as mutual as it seems. Apparently, the exports from China to the US really only offer 50% of actual Chinese value. The remaining half is component parts and services from other countries. This means that if China dumps US debt and in effect allows their currency to rise relative to the US dollar, that it therefore rises relative to all those other countries currencies making their input costs much cheaper. They can then reduce the price of their exports to US without diminishing their profits or US demand, (probably to some degree anyways).

    So if this is correct, then the US currency is far more vulnerable to a Chinese monetary policy then originally thought.

Trackbacks

  1. China And The U.S. Debt - Analysis
  2. China and the U.S. Debt | The World Around You
  3. Will China Dump U.S. Debt? | @jatinshah

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