Suppose it was the US who had a $Trillion surplus.... The US also had a population of a billion whose jobs depended upon exporting to China.... If manufacturing were to decline 5%....there would be civil unrest.... The US has already invested over $800 Billion into China....mainly in real estate mortgages....The US thought that it was investing in AAA debt....but found out that a massive fraud had taken place and that the ratings should have been CCC....The US policy is to only buy AAA debt....China made no effort to repay the US....even though China was at fault....China did nothing more than say "The US should have performed better due diligence".... The US loans China approximately $3 Billion every business day.... .............................................................................................. The real estate market ....and the entire Chinese economy falters....over $500 Billion is lost in Chinese investments.... And the Chinese make an additional $2 Trillion request from the US....$2 Trillion is more than the total cumulative debt borrowed in the history of China.... The US exports to China decline by 50% and the US people become livid in that they have already lost half of their previous investments....and are losing many jobs....China becomes more desperate and demands another $2 Trillion or they will not be able to import any more products from the US....China has already lost its manufacturing base to the US....and basically borrows against historical good will.... Also in order to pay back US debts.....China begins to print money to pay off US debts whereas the Chinese currency plummets..... What would the US do ? .............................................................................. The point..... Just how naive are US politicians and the supposed economic advisors ?
http://seekingalpha.com/article/125843-chinese-are-likely-to-halt-purchases-of-u-s-treasury-debt Thus the question becomes.... The US could tax 100% of the upper 2% ....and this amount would be declining and insuffucient.... So tax increases should be seriously questioned.... .................................................................................................... The next question becomes how can the US create a better tax base that will be able to repay its debts without overtaxing its population ? Will this argument be sufficient to convince the Chinese to keep lending money ? ................................................................................................... Thus the more severe question remains.... Will the US seek to rebuild its tax base in a proper manner by changing its tax structure such that it will allow for "rebuilding" to take place ? Or Will the US continue to pursue a "failed approach" by reducing the very tax base which is necessary to repay the Chinese.... Will the US just willy nilly print more money and attempt to pay China back in a devalued currency ?
China is too weak to walk on their own. If they were really afraid of loss of value, they would probably spend it massively. They still need a stable USD to export there, so they can't really threaten the US of anything. Also considering the money they lend is not spent on productive uses, but on consumption, that money is basically lost. It doesn't bring in money, but rather political power. Then if the debt is not paid by higher GDP but rather by higher taxation, I doubt whether any form of tax reform would work. Maybe if you did tax the super rich you could make it work, because they are the only ones whose wealth is rising. You can't tax a shrinking taxbase and expect it to work. China really wants to maintain the current USD environment, since they are so heavily levered to it. So what they can do is sit and wait.
The Chinese are Wal-Marting many countries in the world -driving out their manufacturing base and becoming the wholesaler to the world. From Afghans who used to make carpets by hand to unemployed laborers in Canada. Unlike capitalistic societies, the Chinese govt coldly and carefully figures out which areas they will enter and dominate next. Boeing and Airbus are in their sites. I don't give a flying whoopee what they think or want. If they collapse, it may be better for the world.