Because it doesn't work that way. No one decides what makes sense, the world just follows the money and the people.
The byproduct of the present financial crisis is just the opposite. The result of high unemployment in the U.S. A. : escalating tradewar with trade barriers will be putting a break on the recent transfer of manufacturing sector and labor to China. Since the US dollar is the reserve currency of the world , the United States is in absolute control ( not to mention USA is still the biggest and strongest economy and military power on the earth) there is no question who will win the upcoming economic warfare. Besides the United States has the most sophisticated and experienced financial strategists and that is the reason why just seems the be the opposite is happening whatever I described.
in case the US ever were to default in 'desperate' times, Chinese govt goes from rich to poor instantly, imagine the riots then. at the end of day some might have to reconsider who the real hostage is. chinese nationalism has been running strong, but the time has not come yet sort of speak.
This "selective default on China bought US tsy debt" sounds like great idea. in practice, it won't work. if it does, it hurt china little and hurt US most. here is why: 1)China can just buy CDS protection on US debt from euopean banks 2)China can simply use tsy bonds as collateral to borrow euro or USD$ 1T$ sounds like a lot of money, but not really in fixed income market. if China can only repo out 1/3 of tsy bonds and US declare defualt on those tsy, current financial crisis will look like cake walk because of collateral damage. 3) China will freeze US corporations assets in China 4) this will be the end of $ as reverse currency.
First of all Im a fan on China/Asia, but the time has not come and it wont come for a while. do you really think in that situation anybody would pay out on any swap arrangements? especially with China who tends not to honor any losses above x.. yes they can freeze assets, but that would be the end of technology transfer - "copying" Since China had brilliantly maneveured to screw all wireless companies after building out the grid for what turned out China Mobile, anybody going into China in the first place has already thought about the risk of nationalization. China is not ready to take over, it has not made the technological leap necessary to lead. Huawei and Lenovo are a step up from assemblying computers and those are the two largest best known Chinese tech companies. everbody talks about 1.6 B people, to me its more like 400M people plus 1.2B of liabilities whom you need to feed house and employ.
China could borrow from Americana banks using tsy bond as collateral. In the event of US default, who will suffer the most loss? today's finical dealings are so inter connected together, it is unthinkable to default on China owned debt only without causing much harm to US. No one is saying china is taking over US. China success might not be at the expense of US. it is not zero sum gain. True, China is still backward country on many respects. but bashing China will not help solve US problems. Hoping china crash will not make US better and it is not wise because you depend your own fate on someone else's misfortune, which you cannot control.
i called them 'desperate' times, sure the financial system as we know it would almost cease to exist, in that case US and China would have clean slates sort of speak with the latter being in much worse situation post meltdown. i would imagine PLA in Taipei within a week after that and US not raising a finger. im not a China basher, im a fan, but when i see exaggerated posts i try to give some counter arguments. China has what, 5 thousand years of history compared to US's 300 years?