From AFP (2011, Feb 21)
China's clout -- gleaned from its nearly $900 billion stack of US debt -- has been widely commented on in the United States, but sensitive cables show just how much influence Beijing has and how keen Washington is to address its rival's concerns. An October 2008 cable, released by WikiLeaks, showed a senior Chinese official linking questions about much-needed Chinese investment to sensitive military sales to Taiwan.
"In that regard, the recent announcement that the United States intends to sell another arms package to Taiwan increases the difficulty the Chinese government faces in explaining any supporting policies to the Chinese public."
His comments came days after the Pentagon notified Congress it was poised to sell $6.5 billion worth of arms to China's arch rival Taiwan.
Link to SNL video
My response to China:
I dare you.
I double dog dare you.
One must ask how the Chinese have amassed such a huge wad of our currency and thus our debt when considering my dare to the Chinese. In short, the Chinese forcibly keep their currency undervalued by constantly intervening in the exchange markets. They are doing so to keep their exports 'cheap' and their export factories busy. They need invest all those US dollars in something so they end up in our Treasury bonds and bills. Their huge holdings of our debt is a direct result of their mercantilist trade policies.
If the Chinese do not want to keep buying our debt the can very easily do so by not intervening in the currency markets, but I doubt they will do so in a dramatic fashion. Their low skill low wage factories cannot compete without an under priced currency. The Chinese are slowly raising the Yuan but it is a challenge for them to wean themselves off the Faustian bargain they created.
Paul Tudor Jones of Tudor investments dedicates 14 pages to a discussion as to how the undervalued Chinese Yuan has created severe imbalances worldwide. I suggest you read the whole letter Mr. Jones' letter (2011 Feb 14)
Failure to address this issue - as one of the primary causes of the intractable unemployment currently plaguing the US -- has led to a series of second-best policy options . . . Indirectly, the peg has exacerbated the United States' large fiscal deficit while enabling our elected officials to delay the difficult spending adjustments that are inevitable.So China, yes, you can threaten to stop buying our Tbonds. We would pay a little more for our home mortgages but it would also staunch the flow of manufacturing jobs out of America. You however would see a massive number of people thrown into unemployment and most likely a repeat of Tiananmen Square.