Quote:
Originally Posted by Ronald Pagan
If you were China what would be opportunity cost of not funding those deficits? People think that China has nothing to lose from pulling out. It has everything to lose, more than the U.S. actually if they stopped lending.
The idea that they're running out of currency to lend is silly as well. Their current account surplus exceeds what they lend alone not even factoring for economic growth. While the surplus is diminishing there no indication that they have any less of any appetite for foreign reserves (U.S. holdings) as the dollar is again asserting itself as the global reserve currency.
Sure they could diversify and invest in Euros but in all honesty, the Euro is a much riskier investment. The Euro zone looks weak, has had huge GDP drops and demographics do not look good long-term. Compared to U.S. dollars, already the reserve currency switching to that lending makes no sense.
Put youserlf in the position of a Chinese policy makers. Why on Earth would you quit lending? What else are you going to do with your massive surpluses? Let it sit?
Even if the surpluses diminish, barring a global economic calamity it will rebound and they'll be forced to do something with them. No other choice. Chimerica is alive and well.
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http://business.theglobeandmail.com/...l_gam_mostview
This article speaks to this. Savers vs Spenders.....Long term I am putting my money on the Savers....
"When we see hints that China might get out of the U.S. dollar, world stock markets react."
Prof. Jiang added: "When we see talk that more stimulus might be coming from the Chinese government, the whole world pays attention."
China did not seek the spotlight. It has been thrust into it by the economic crisis. China's is the only major economy that is still experiencing growth, though the pace is down by half since last year, and the rest of the world is still hoping that Chinese dynamism will help pull the world economy out of the ditch.
The economic crisis has also thrown doubts on the free-market model of capitalism championed by the United States, making China's state-guided model look better by comparison.
"China is saying, 'It is no longer time for us to be lectured by you guys. Your model failed. We have to put in something that works better, both in our own interest and for the whole world,' "