http://seekingalpha.com/article/120547-why-china-can-t-dump-u-s-treasuries?source=article_sb_picks Some valid points....
I don't see anything new here this line of thought has been going since 98. Its the same reasoning as saying why would a bank foreclose on a home. The foreclosure forces them to mark down the loss on the loan and they are stuck with a worthless property with carrying costs. Well guess what banks foreclose and its a race to the exist. To say that China has bigger problems well yes they do, but of their own making 1) They are still a communist country, with a rent to own capitalist economy. Eventually this bi-poplar disorder must be resolved. 2) They have 1.2 billion mouths to feed But to say that because they have cash is a problem, is crazy. Its the same bullshit argument, finance companies have forced down peoples throats to convice to part with their hard earned dollars via debt vehicles. China, may not suicidally, dump treasuries. Then again, not many thought Japan would suicidally trigger a war with the U.S Gold can become a hedge at higher dollar prices. As some have argued, which is a further argument for 3,000- 5,000 dollar gold. Also, diversification doesn't mean the best return, it means stable returns. The dollar may be the best return short term but China has been slapped into reality as too why this is a bad strategy. You can bet, that China will slowly work their way out of this mess. They already suffering the depression. They will do this in secret. But too think that they would suffer these problems, and not address a fundamental flaw of their economy being tied to the worthless dollar, is sheer Pollyanna. I believe its the same line of thinking why the crown though the colonies would never revolt, because they needed the crowns gold. The article continues to espouse the same baloney, that our position is better, I suppose, if you don't give a crap about paying your bills, and there is no one to send you to jail, and the banks keep lending you money then sure it the best place to be but how long can all those elements hold.
What rubbish. Firstly the Author decided upon the outcome and then selected versions of the facts to justify that outcome. The Chinese like other nations, who are denied equal rights (G7 for example) will continue to buy Ts at their own rate that suits them until such time as they chose to stop. Ultimately, the power lies with the lendor.
When China is able to transform their native population into spenders rather than savers, they will tell the U.S. to FO. It's as simple as that.
Once they start spending, the giant trade imbalance will narrow and we'll have less debt to sell to them... So moot point. You'll only disagree with me if you think they have no use for our medicines, agriculture products, airplanes, etc. While we may be at a trade deficit on a annual and monthly basis, it may actually be at balance if you include the next decade.. (ie we borrow from them the last decade, the next decade the offset that with increased consumption)
There seems to be two inevitables.... 1) The US wants out of its import/deficit position....The road getting there remains to be mapped out.... 2) China wants out of its "somewhat stuck sole lender" position....They are basically eating a good portion of their exports in the name of labor at work....This is not tenable.... The US wants to reduce its deficit by trending towards exporting more....and consuming less.... China wants to be less export dependent....and would like to trend towards more per capita wealth/consumption.... A small financial change in the per capita of China is a huge relative change in total currency.... An increased savings rate in the US would be good salvo....and would reflect a significant decline in demand for imports.... ................................................................... The real story being what happens "between time".... What is inevitable is that both are not going to get exactly what they want....when they want it.... Neither has elected "the right road"....not yet....