When will China, use its hold over America debt to collapse our economy?

Most people dont understand how the debt relationship works with China. In theory, China could deside to dump all of the debt that they are holding and cause US economic harm, but this would harm them as well and therefore we should not be afraid of this happening. So here is how it works.

China wants to keep this debt imbalance because it uses US debt to keep its currency artificailly low. This makes their exports relatively cheap to the US and other countries so that its exporting industries can do well. How does this work then?

When the Chinese central bank buys our debt, they need dollars to do so. They must then sell yuan (china's currency) and buy dollars. This reduces the demand for yuan at the same time as increaseing the demand for the dollar. This cause the Yuan to be "less expensive" and the dollar to be "more expensive." Its basic supply and demand. By managing this balance, they "peg" their currency to a fixed rate that is lower then it would be if it were allowed to freely trade.

If they decided to sell off or "dump" all of the US debt, as the fear mongerors and anti globalists say, then they would harm themselves in the process. Yes, this would drive up US interest rates as the supply of loanable funds decreases driving the US into recession. However, this would also "unpeg" their currency and cause it to appriciate, as they buy back yuan as they sell dollars. The dollar falls, the yuan rises. This hurts their exporting industries as their goods are now relatively more expensive. While at the same time, a US economic collapse will reduce american consumption demand for their products. Therefore, if they are going to take the US down, they will take themselves down with the US.

Also the reality is that even though it would hurt the US, the american economy is very wealthy and it will be absorbed. A recession would occur, but the whole country won't collapse. The same can't be said about China. Social disorder is something the China government fears, and a massive economic collapes resulting in heavy unemployment would cause unrest. The governemnt may even fall under the most severe case. They wont risk this.

So in conclusion, though it is theoretically possible, China won't be doing this anytime soon. It will harm them too. Our economies are too interdependent. And I am assuming all of those anti-globalization people out there also dont like war. If the US wants to avoid future conflicts with China, then the best way is to keep this interedependence, so that neither nation would benifit from conflict.

EB nailed it. To which I'd add:

The US owing China money is not in any way like an individual owing a bank or credit card company money. China can't repossess our car or have 3rd party debt collectors call at dinner time. China's only means of "harassing" us would be to, as EB says, sell all their US Treasury bonds all at once, in hopes of disrupting the bond market.

There is just no conceivable reason for them to do that -- if it hurt anyone, it would hurt China FAR worse than anyone else. Every Wall Street trader knows you don't dump all your stock at once, or even huge chunks of it at once -- you'll just destroy your own proceeds by flooding the market. And the Chinese economy depends on US as a customer a lot more than we depend on cheap plastic goods from China; obviously such a bizarre "attack" would end trade relations. It would just make no sense.

And what no one wants to admit is that if China DID do this, we have a defense -- the US Federal Reserve could literally buy every single one of those bonds flooding the market to absorb the shock, and then manage the problem from there.

Finally, keep things in perspective. The Chinese work very hard to make money, and then they turn around and give *US* the money. In return, we give them pieces of paper. Who comes out ahead in THAT deal?

The magnitude of China economy is a lot less than California economy or Texas economy.

The problem between US economy and China economy is that the first is accumulating a big trade deficit to "help" to develop the China economy.

Remember that China is in transition from Communism to capitalist, this is the political reason for that "help".

I think there is a distortion in public opinion of US created by magazines and newspaper because these ever are written about the "enemies" of US; looking for "enemies" of US ever has sold newspapers and magazines

I think you missed something. As of right now with the value of the dollar against other currencies is at it's lowest. So in fact if they cash in their chips now they would lose a lot of money. The only option for China and other US bond holders is to hope the economy turns around so the value of their investments turns a profit.

LOL!!!

"Our" treasonous "globalist" government has intentionally collapsed the economy by printing and printing and printing worthless dollars. China doesn't have to do anything. The dollar is garbage already. China's dumping the dollar would only lower the price further and hurt the rest of their dollars anyway. Who's going to buy them?

The borders are no longer even being protected. "Our" government no longer even pretends to serve the people. Money and technology is being PUMPED into China at the expense of the American people. There are weekly news updates on how the "Bird Flu" is progressing in it's mutation to kill humans. BIZARRE!!! Planes are spraying chemtrails overhead. The Constitution is being mutilated and plans are being made for a totalitarian government in case of any emergency. Things are much the same in the UK...

They're collapsing it. They're "globalizing" it. They're going to attempt to kill 80% of the population like the "globalists" have been openly talking about for years!!! They're going to "save" what's left of us with a new form of "global" government with no middle class and little freedom. China is the model for this government.

http://en.wikipedia.org/wiki/Georgia_Guidestones

Your "Christian" leaders and financial giants...

http://www.infowars.com/video/previews/grove/wm_bb...

http://www.infowars.com/bg_ceremony_clip.htm

Good question. Truth is we don't need China's help. We are doing a fine job of collapsing our economy ourselves.

As long as Republican-backed corporations increasingly bail on this country for their higher overseas profits, we will become the greatest debtor nation in the history of the world.

Probably the around the same time Japan does.

A better question would be what will happen when China allows their currency to float and naturally adjust itself.

talk about over simplifying an issue....do u really think it's that simple ?? most of the investment in china is by american companies to make their products cheaper and then sell it in US

Probally never, because we would wage war on China. But if that ever does happen, prepare for WWIII

Why would it do that ? America is it's biggest trading partner.

That is like Macdonalds bankrupting all its customers.