Let's Play Doom

[ymarkov]

A meme popular in many circles, both left and right, is that Chinese holdings of US Treasury debt are a problem for the USA. Expressions include "the Chinese own us and our children" and "The Chicoms can ruin us any time."

I'm not saying that it's not a problem (heck, excessive debt is always a problem), but how exactly are these specific holdings a problem? So I'd like to play a doomsday scenario or two. I'll be the Fed/Tresury, and you be the Chinese Politburo/Central Bank. You have $1 trillion in T-bonds. Make yourself a problem.

Comments

[malenkiy-scot.livejournal.com]

Dude, who has weirded whom out?! :) (Sorry, someone recently did this to me and I wanted to 'retaliate', but, obviously, could not do it on the same person as she would be ready for it).

But leaving weirding out aside, your first answer applies only in the current situation, where the Fed is trying to use a very potent remedy with unforeseeable long-term effects, that already is causing inflation (see, for example, the oil prices and the Sheqel exchange rate).

As far as the second answer is concerned, China would have to play it right - without the announcements, via proxies, relatively slowly, until it's too late. There is a thin line here between being "hostile" and legitimately cashing in.

(As an aside, see this piece)

[malenkiy-scot.livejournal.com]

This also looks interesting: http://www.brookings.edu/testimony/2010/0225_us_china_debt_prasad.aspx