The age old adage of:
If you owe a bank $1,000 and cant pay, your in trouble and a deadbeat.... but if you owe the bank $1,000,000, the bank is in trouble and you are partners. Nobody knows this better then Donald Trump.
But what do you do when you suddenly realize that you owe China $1.3Trillion? Let me rephrase, the US Treasury is not loosing sleep over this, but the Chinese are constantly tossing and turning looking for the other cold side of the pillow.
China knows they have a long term problem with the amount of money they have lent us. As a consequence, Beijing is diversifying its overseas investments and pressing U.S. officials for an "exit strategy" from the ultra-loose fiscal and monetary policies that China fears will eventually inflate away the value of its U.S. Bond Holdings and dollar denominated assets. But China's pragmatic policymakers also know there is no practical alternative to the dollar as the world's main reserve currency, hence the Chinese have a problem.
Which is also why most bankers say any rhetoric from Tuesday's inaugural BRIC's (Brazil,Russia,India, and China) summit in Russia about the need for the United States to cede power in global financial institutions should not be taken as a signal that Beijing is positioning the yuan to challenge the dollar's supremacy.
Its all hype.
China is worried about USD, but what else are they goign to park their money into?
ReplyDeleteIts a lot of talk...