Tuesday, November 17, 2009

Why China does not call in our debt -- yet!

ABC “World News Tonight” presented an amusing cartoon tonight explaining why China doesn’t try to call in our debt and sell our dollars.

If it did so, the dollar would go down in value, and Chinese currency would increase in value. Chinese goods would no longer be cheaper in the United States, and jobs for Chinese would disappear, as some would come back to the US, which would have to make more of its own goods. (That might be a good thing.) The Chinese government cannot tolerate the political consequences of the job loss.

Nevertheless, the lack of spending in China on some domestic needs, such as heating schools, shows the social consequences of such export policy. China does spend money on huge infrastructure projects, like dams and power plants.

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