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Politics : The Obama - Clinton Disaster -- Ignore unavailable to you. Want to Upgrade?

To: Wayners who wrote (8449)	3/5/2009 11:49:11 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 103300

Thanks, Wayne! At the US Government's primary auctions of Treasury debt the bonds must be paid for with DOLLARS. (This allows the Chinese to recycle the hundreds of billions in Dollars that they get paid when we buy their manufactured goods.) The dollars they earn through their exports would not earn any interest in the vaults of China's central bank --- and they would not be able to maintain their Yuan-to-Dollar peg if so many dollars were let loose in their domestic economy. (Also: what major power would ever allow their own sovereign currency to be supplanted by some foreign-controlled currency... in effect handing domestic economic policy over to foreigners to control? Answer: no big power would ever permit that.) So, China (& Japan, the second largest earner of Dollars through trade), are forced to 'sterilize' the Dollars they earn --- remove them from their domestic economy by INVESTING in Dollar-denominated assets somewhere overseas. Now, they could buy stock (if allowed to by the foreign authorities) or land (same problem) or any other valuable kind of foreign asset denominated in Dollars --- and, increasingly, they are doing more and more of that! But... for the TRULY MASSIVE AMOUNTS of Dollars that they are earning, that they MUST RECYCLE somehow so they can keep their competitive advantage (by keeping domestic currencies pegged at a low exchange rate to the Buck), and they really believe that a cheap currency gives their exporters a big advantage... for these HUGE AMOUNTS of Dollars that they are earning every year, there is really only ONE MARKET that is BIG ENOUGH, and DEEP ENOUGH to soak-up all those dollars --- and that is US Government Debt. (Now... eventually I am sure that their more and more of their own production will get soaked up by their own consumers... once they grow enough domestic consumers so as to rival the buying power of the US consumer market. And, by-the-by, I'm sure that eventually inter-Asia trade will grow to rival trans-Pacific trade, and they will then no longer have so many Dollars that they are forced to sterilize.) Or, one day they will decide they can live without the artificial export advantage that a manipulated currency gives them.... But, likely big changes like that will take a VERY LONG TIME. Probably decades. In the meanwhile, for some damn good economic reasons, they are wedded to the policy of buying lots of US debt. (Not to say that they would not put pressure on us if we ever went 'Zimbabwe' on them.... :-) Of COURSE they would. Any nation would. (But the pain of that would be SHARED.)