China on the rise!

[Monseratto]

some things people don't understand

where do China's treasury and GSE bond holdings exist?

does China hold physical paper? kept in a vault in Beijing?

it's all electronic. the bonds exist in the Federal Reserve System's hard drive

every country on earth that uses US dollars has an account at the Fed

the US can freeze any country's account

the president of the US can freeze China's account with a phone call

if China decides to dump its treasury holdings the US will see it as a threat to national security and freeze China's account

the US owns China

Yep, the US did that before with Iran during the Hostage crises. But China is no Iran. Would the market take this calmly? Or would there be a financial meltdown that would make the 2008 market crash a picnic? What do you see Uls? Peace on earth?

Motivated by the political prudence and economic wisdom it lent foreign currency to other nations. In 2008, when Argentina, Indonesia and South Korea were confronting with short-term liquidity problems, China's credits rescued them timely (Wharton University 2011). Additionally, it encouraged its domestic companies to invest abroad with US dollar in exchange for renminbi. Thanks to the instant and other measures its outward FDI jumped from US $90 billion in 2006 to US $230 billion in 2009. The options are not vast in front of Chinese managers of the monetary policy. It seems that as its currency is pegged with US $ its economy is unwittingly entangled with fate of US economy. Both might share market-based ups and downs felt in either country. In case China decides to convert US $ into other currencies like euro it might discredit the former and as a result China's investment in US assets might lose its value. Secondly, if it decides not to invest anymore in US assets the consequences will also not be different. Moreover, in case of stopping buying US treasury bills, the cost of borrowing within US might go up, making US exports to China more expensive, hurting Chinese exporters and consumers. Under these circumstances, the US has been refrained from applying some protective measures on Chinese products bound to the US. To the US, it gives some assurance that China will not take any action haphazardly that could affect US assets.