Yes Indeed China is funding U.S debt for itself because if it doesn't do so than they will have to lead the Yuan to appreciate and would eventually hurt their exports.
China is investing heavily in upcoming markets and diversifying rapidly to find consumption for its massive industrial base in other populous countries. An alternate consumer base is the real Chinese hedge, not shifting currencies around or asking the US for their money back. Once this happens, China will automatically obtain leverage (which it has to a lesser extent even today) without having to face significant consequences itself. It could cut T-bill purchases or reduce them, while maintaining alternate markets to sell its wares to.
I dont see chinese is doing the same. They are just holding treasury debt for some unknown reasons unlike Japan which also holds significant corporate debt.
This BOP will hurt China more than U.S.
China yuan policy hurts global recovery - BloombergUTV.com
Its all buisness.
First of all USD is a reserve currency unlike PKR ,Yuan or Yen.
US is the largest market for Chinese and Japanese goods . So if US is out of money, then their exports will drop.
Its a very smart move "lets give them money, so that they can buy our stuff".
These treasury bills are not alms but an investment...when US economy picks up ..they will give back handsome returns to the owner.
Last edited by Neither Right Nor Wrong; 06-12-2010 at 01:18 PM.
The real Problem China faces today is that it has no domestic economy unlike other countries, so it heavly relies on the first world countries to generate it's own growth. All it takes, is these countries to boycotte Chinese goods, unlike America it has not done so....
There is also a significant difference between T-bills, T-notes and T-bonds. What China is holding is T-bills, a short term instrument which matures in one year or less, hence this is short term debt and they wouldnt be able to bank upon it in long term.
China has no love for US or the international economy and is doing US no favours but only protecting it's own interests by the T-Bills.
In order to ensure its positive trade surplus, it is important for China to invest in T-Bills so that the USD does not correct despite the increasing US trade deficit and correspondingly ensure that the Yuan does not appreciate from where it is because of the USD depreciation (you anyway know that they have pegged the Yuan to the USD on the Yuan side).
US is the biggest consumer in the world and any deceleration in the consumption in US will by and large hurt all economic activity in this world but speciall hurt those economies that thrive on exports. And you know which is the most export dependent economy in the world. Don't you?
Please refer to the following link. Though very simplistic, but it explains quite well why the Chinese invest in T-Bills and will have to fund the US economy.
Costly Trade With China: Millions of U.S. jobs displaced with net job loss in every state
If the USD reflects the true US trade deficit position in the present day then I assure you that US will be exporting the goods in to China and not China in to US as is currently happening.
And to be fair, if you take out the illegimate peg from the Yuan, you will find that by the end it is US money that is being spent on this war and not Chinese.
This is one cake that China can have, but never eat.
This is last year's news
Regarding Taliban hitting NATO Convoy, I have a feeling that its not always Taliban who are responsible for the attack. some times trucks catch fire on their own
Another thing to keep in mind regarding the money supposedly paid to Pakistan (GoP, Military, NLC etc.) is that it is likely part of the CSF, and recent history indicates that Pakistan has incurred expenses that have not been paid for up to two years, and the US has used reimbursements as a pressure point on Pakistan.
We don't get interest on these delayed payments, and the money we spend on logistical support for the US comes out of our budget, and the delays screw things up royally.
So the impact in that sense, of NATO shifting to a new supply route, may be beneficial to Pakistan as well.
It is imperative for the Uited States to arrange for the surge and then start witrhdrawing from ****** region. It has been Pakistan's wish list as well.
IMO this is a very positive move whether intentional or otherwise. Of course for the US the NATO supplies are very critical and they cant afford really to keep on suffering attacks on the convoys.
All in all a very good development for the United States that it has a bargaining power now as compared to the time when the alternate route wasnt available.
I am sure Georgia is gonna co-oprate with the United States, though not very sure of Turkmenistan. Depends a lot on Russia, how they are moving their pawns.
From the other world view such a development could not have come at a better time for India which has large stake in post-war Afghanistan in terms of Humanitarian relief and reconstruction work or otherwise.
India had been handicapped for some time mow, particularly lying low since the attack on the Indian guesthouse some timeback.
I think with the opening up of the alternate land routes (may prove to be expensive, nonetheless effective in view of the current situation in Pakistan) India will not be antagonized by the Federal Government as it has been doing for some time now.
India will have a strategic lever in its hand to play a more proactive role in Afghanistan, much more than it has ever played.
While the cost benefit analysis has proved Pakistan to be a dependable ally against the war on terror, this particular event will have immense potential to change status quo relationship as it exists today between India, Pakistan and the United States.
The quicker the US dependability on Pakistan lessens the quicker India will be able to realise the fruits of investment in Afghanistan.
So as of now they should look at consolidating the new supply lines.
If Pakistan becomes expendable at US hands, nothing can be sweeter to India at this time
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