Quote from: malganis on August 20, 2006, 06:37:08
China owns the debt of the US but its not in China's interest for US to economically collapse. Where would they sell their products then?
Not knowing alot about economics I asked the same question. This is one of the responses I was given:
QuoteOK, ;let's assume China bails out of it's US denominated assets. Who gets clobbered?
#1. The United States. Because they depend so much on the Rest Of The World buying US dollars so they can then turn around and buy stuff (especially Oil) from the Rest Of The World, they are the most vulnerable, right now. It comes as no shock to hear that China holds the US in great contempt and would like to throw the US to the wolves;
#2. Japan, China's traditional enemy. The first biggest holder of US denominated assets is Japan. If they US currency tanks it, the Chinese get to watch Japan disappear beneath a sea of Red Ink.
But what happens to China? Won't it's reserves get hammered? Not really - because the Chinese Renmimbi Yuan is pegged to the value of 1/8th that of the US dollar (they recently allowed a revaluation from 1:8.00001 US dollars:Renmimbi Yuan to (gasp) 1:7.999998) as the US dollar falls, the Renmimbi yuan gets cheaper and cheaper and cheaper, until their exports are so...inexpensive, China will be the only place the US can acutally buy anything from.
At that point, it won't matter if the Chinese have lost most of their US denominated assets, because they will then be able to siphon what remains of the US assets off and the US will be powerless to prevent it. Indeed, they'll have to do it, as it will be their only option.
China might destroy an awful lot of it's US$818 billion worth of Foreign Reserves, but it's adding money to 'em at the rate of US$15 billion per month.
That means that if they lose the lot it'll take 54 months, or around 4 and a half years, to rebuild them. Getting the picture yet?