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2/26/10

Is China holding the key to US economic survival?

One of the big worries Americans have about China's rising economic
power concerns its immense holdings of U.S. government debt. The fear
is that Chinese actions regarding these holdings could end up
destabilizing the U.S. economy, or that they could be used as a
political tool to influence American policy. If China, let's say, got
angry at Washington over its support for Taiwan or the Dalai Lama,
Beijing could retaliate by dumping U.S. Treasury bills. Or perhaps
China would sell Treasuries as part of a no-confidence vote on the
future of the U.S. economy. By selling American debt, China would
weaken the value of the dollar, damage investor sentiment towards the
U.S. economy and make it harder for Washington to finance its giant
budget deficits.

Eswar Prasad, a very smart economist at Cornell University and a senior
fellow at the Brookings Institution, submitted some very interesting
testimony to the U.S.-China Economic and Security Review Commission on
Feb. 25 regarding the implications of China's U.S. debt holdings.

For more: Will China Dump U.S. Debt? - The Curious Capitalist - TIME.com


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