IMO< this should be extremely troubling to us. China is under the impression that it can dictate to the U.S. Whether true or not, it’s certainly a wake up call.
How did we get here? Is this where we want to be? Is there need for change to avoid this?
Frankly, it’s just more confirmation of the problems I have been predicting for about fifteen years now. We really screwed up by super-charging China.
2009 QE? Necessary because of 2008 bank de facto nationalization. That was necessary because of intervention in rates which caused overleverage but also bank profits dependent on carry trade. That was thought to be necessary to fight the dot-com bust and 9/11. The dot-com boom was exacerbated by low rates to fight the Asian crisis, carry trade from Japan's bust-fighting measures, LTCM spillover, moral hazard causing abnormally low rates for GSE's, etc.
Can trace a lot back to Congress in the 70's through 90's. Also 1987 response to crash (market meddling and low rates including distortions in long term rates). Before that wage and price controls and leaving the gold standard. Only one simple change is needed: dont meddle in the markets, especially not in the credit markets.