Why does China keep letting the U.S borrow money?

[aFireInside]

What incentive could they have?

 

It doesnt compute

[UnorthodoxCuriosity]

 China is our landlord and we know he's beating his wife but we're 2 months behind on rent so we let it slide. - Goldman Sachs Elevator

 

(Sorry, this doesn't answer your question, but it reminded me of of this quote)

[Alan C.]

The only plausible explanation that I've heard was from Peter Schiff. He speculated that politically-connected interests in China pressure their gov't to loan money to the U.S. so that consumers here will purchase their products.

[masonman]

I thought it was primarily because they want to keep acquiring US dollars and buying treasury bonds so they can maintain a trade surplus, even though if they let the market return to a more natural state they would have more domestic consumption, surpluses, high standard of living, etc.

 

I feel that talk such as this means things are going to change at some point:

 

http://english.peopledaily.com.cn/90883/8182231.html

[shirgall]

Because we need Chinese currency to buy Chinese products, at some point on the value chain... and the trade surplus masonman mentions makes this transaction more favorable than it otherwise would be.

[NumberSix]

They love democracy!!! LOL. I think the government of China needs to keep the value of the Renminbi low so that Chinese exports are priced low.  That in turn creates demand for low-priced Chinese goods abroad, which then fuels growth.   One way to keep Renminbi low is to buy up lots of US treasury bonds.  The US is the world’s largest market and If the dollar collapses the Chinese will lose a large amount of export sales.

[aFireInside]

Thank you all that makes perfect sense.

 

So basically everyone keeps going along with the flow

in order to prevent everything from falling apart.

[Lowe D]

The Chinese national bank, or whatever it is called, buys US Treasury bonds for the same reason any bank does.  It's a way to lock in a nominal yield with little or no credit risk, and its interest is paid in the most held currency in the world.

 

When part of a broader portfolio, it's a good investment.  No political intrigue or trade-surplus-related reasoning needed.

[ringo141]

Regardless of who and why I wonder if with all these huge amounts of money passing around the world, if anyone knows who has what (other than some numbers on paper that keeps getting shifted around) and if its all just a shell game or an illusion? I hear 1.5 billion lost in Ontario and wonder. Why wouldnt that upset the balance on any small governments plate. 

[KindBud]

The Chinese national bank, or whatever it is called, buys US Treasury bonds for the same reason any bank does.  It's a way to lock in a nominal yield with little or no credit risk, and its interest is paid in the most held currency in the world.

 

When part of a broader portfolio, it's a good investment.  No political intrigue or trade-surplus-related reasoning needed.

 

Can the interest on US Treasury bonds really pay off considering the size of the increase in the money supply? Doesn't debasement of the currency more than cancel out any interest gain?

[Lowe D]

Can the interest on US Treasury bonds really pay off considering the size of the increase in the money supply? Doesn't debasement of the currency more than cancel out any interest gain?

 

The question is whether price inflation, on goods priced in dollars, is going to eat away at the bonds' nominal yields to the point that the real yields are zero or negative.  The answer is maybe.  This depends more on what the private sector does than the gov't.  Are banks levering up, making loans?  Then there's inflation.  If not, not so much.  Like right now, not much inflation.

 

Interestingly, one way you can tell this is happening is that the price of gold increases.  Gold is used as a substitute store of value when real rates are zero or negative.  Negative real rates is the only thing with which gold price correlates.  Real rates are positive now, due to low inflation, and gold has been declining since the ast quarter of 2011.

[wdiaz03]

Another funny thing about inflation is that it matters how soon you get the money. Those at the front of the pipeline get the money first and get to spend it before prices go up, those who get it later see their purchasing power diminished.

 

I like to see China not as an entity doing something. But as a elite group adding paper from foreign government to their balance sheet so they can stimulate their economy and have an excuse to print money at the expense of the working class.

 

Ask who benefits. I used to hear Peter Schiff mention "When will the Chinese realize this and that" but not realizing how the ruling class is benefiting from the lending.

 

To me is like saying "When will the Americans realize that raising the debt ceiling..." when Its again a group of people who benefit from these actions at the expense of those who get the money last.

[Josh F]

To prevent us from completely destroying their economy by increasing the cost to import (tariffs, etc).  Also, we're their #1 consumer, and most of their other consumers are our allies and are equally intertwined with our economy. 

[aFireInside]

Another funny thing about inflation is that it matters how soon you get the money. Those at the front of the pipeline get the money first and get to spend it before prices go up, those who get it later see their purchasing power diminished. I like to see China not as an entity doing something. But as a elite group adding paper from foreign government to their balance sheet so they can stimulate their economy and have an excuse to print money at the expense of the working class. Ask who benefits. I used to hear Peter Schiff mention "When will the Chinese realize this and that" but not realizing how the ruling class is benefiting from the lending. To me is like saying "When will the Americans realize that raising the debt ceiling..." when Its again a group of people who benefit from these actions at the expense of those who get the money last.

- I totally agree . Its not Americans or Chinese people that have to "realize "...

[mandi]

What incentive could they have?

 

It doesnt compute

Because they arrogantly think America will never invade them if they keep doing it.

[Cosmin]

To prevent us from completely destroying their economy by increasing the cost to import (tariffs, etc).  Also, we're their #1 consumer, and most of their other consumers are our allies and are equally intertwined with our economy. 

 

Peter Schiff has talked about this as well. If the Chinese currency increased in value relative to the dollar, the Chinese people would be able to afford buying what they now export. It would increase their standard of living, not decrease it.

 

It does not make sense to just export (send goods abroad an receive fiat money). The purpose is to use that money to import goods that you do not produce.

[Silverhand]

Because cutting US off will have major repercussions on the world and the Chinese probably don't want to upset anything. Right now they are building a trade empire. Cutting US off will piss off US government which will lash out at Chinese interests. It will also force US to live with in it's means resulting in US reemerging as a real competition. It is good for the world but bad for financial elites in China. They have the same system as us and they want to be the ones reaping the benefits not their people.