What would they ask for?? These are non-collateralized loans. I am not saying we default at all, I am saying a currency devaluation would take a haircut off of the debt burden. It is not really all that different (technically) than the when the dollar was pounded down from 2002 to 2008, except that was a huge move. China only invested the money we sent to them for plastic dogshit, back into our country via debt, to fund the relationship. Kind of wacky if you ask me, but they were the creditor nation. The dollar devalution will happen, one way or another, either by the free market trade through massive inflation, or by the fed. This is part of how we must inflate our way out.
BTW, since we are specifically talking China, they are pegged to the dollar, and in terms of a dollar devaluation, would not lose any purchasing power in dollar denominated US assetts.
Important point here. Through globalism and trade deficits, America has changed from the world's largest creditor nation to world's largest debtor nation.
Do you think the 600 bn $ china is preparing to re-invest into its infrastructure will be enough to kickstart the world economy?
And plenty of other currencies are going to try to keep up. Nice. Worldwide inflation. Jimmy Carter would be proud.
In short, no. I think there will be sectors that benefit, but China also produces vast amounts of its own resources and will be able to draw upon those without requiring much from the rest of the world. I do like domestic infrastructure plays, but again, I am not sure if that is enough to really drive any meaningful growth as it will likely be offset with other weak area's. We are just too debt burdened at the moment, on not only a governmental level, but an individual level as well. This mess is going to take time to work out. Enjoy the volatility and the coming bear market rally (whenever that is), good times for nimble traders.
When it becomes difficult for us to sell all the Government paper necessary to keep the government afloat, my guess is that the next step will be to start issuing US government bonds tied to a basket of currencies, as other nations have done when faced with similar crises. Then if that fails, default may follow. Timing is everything here, and the US desperately needs to buy time to get its fiscal house in order. Deep, deep cuts in "defense" spending and hyperinflation are on the immediate horizon. The main thing the US has in its favor that no other nation has had is that the world is awash in dollars. Obviously, very few central banks would want to see a total US financial collapse. The question that no one can answer is: can it be prevented?
Why they can't reinvest the money in their own country? Because commodities or industrial-exports based economies, stall in the long run. Just look at Japan.