Why if China is going to take over position of US as economic power and US is going to collapse?
David M asked:
why does China as well as every other country in the world all keep buying US treasury bonds?
and how could China cause US collapse if it wanted to ? why would it want to?
Why would it want to tumble the whole stack of cards? could China do this even if it wanted to?
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Filed Under Economics |
Tagged With Buying Bonds, Collapse, Stack
Comments
2 Responses to “Why if China is going to take over position of US as economic power and US is going to collapse?”
The US and Chinese economy are intertwined. The Chinese need America to buy their stuff. America needs China to make our stuff. China has a vested interest in proping up the US dollar. China could, and couldn’t topple the US. China wants to be the super power of the world. China wants to see a day when the US makes their stuff, but until then they need us. Complicated issue, right now the US is still on top, but one day soon the US could lose pace.
Right now, the U.S. dollar is the reserve currency of most nations in the world. The U.S. dollar is what many commodities are priced in, and in order to buy them, you need to acquire dollars. Right now, there is no other economy or currency that could replace the dollar as a universally accepted currency for use in trade.
It is not in China’s, or any other country’s, best interest to bring down the American economic system. We have by far the largest economy in the world, and we act as the largest market for China and many other countries in the world to sell their products. Any collapse of the U.S. economy would have huge repercussions throughout the rest of the world economy. This is in part why everyone keeps buying U.S. debt, in order to keep the cornerstone of the house of cards intact.
Even if China chose to, I doubt it could wreck the U.S. economy. China’s first avenue to do this would be by ceasing to buy U.S. Treasury bonds. While this would be a huge imposition on the U.S. government, forcing it to offer higher yields on its new issues to make sure they are bought, it would eventually sell them all to other investors throughout the world. Interest rates in the U.S. would rise, perhaps drastically, and this could plunge us into a recession, or possibly a depression, but it would not cause a “collapse”. Another action China could take would be to impose onerous import restrictions on goods sold by the U.S. although that would start a trade war, and since they sell more to us than we do to them, they would be disproportionately impacted.
While the U.S. is dependent on China to consume our debt, and to sell us cheap imports, China is also dependent on the U.S. to consume its products and fund its transition from an agricultural nation to a manufacturing one. If the U.S. was no longer available as a market, the factories in China would fall silent, and the people would rise up against the Chinese Communist Party. We need them, and they, in turn, need us.