I loved this line:
“5) Dropping the dollar peg will make the yuan a major reserve currency. That means lower interests rates in China as foreign central banks build up yuan reserves.”
I mean who wouldn’t want to hold the notes backed by full faith and credit of a repressive fascist regime.
China has a problem, and it’s not that they hold too much US debt.
They have too many rural farmers who have left their homes and moved to the cities looking for work. Millions upon millions every year. They go to work in factories to make a better living than farming. Picture Mexican laborers moving to the US to work and you have a good analogy.
As the US import flow slows down, Chinese factories are going out of business by the tens of thousands. China has responded by passing laws that make it harder to fire workers, which in turn has made the problem worse. There are now tens of millions of workers floating around without jobs.
In the short term, China can use their US dollars to spend on infrastructure building projects to keep some of those people busy. But they will use up their dollars pretty quickly. Their reserves seem large, but they can run through them within a year or two under many possible scenarios.
So the worry should not be what can China do to us, it’s what China needs to do to keep its shaky system afloat. China has huge problems brewing, and it’s not the shakiness of US debt.