Sorry, I just keep harping on the same string
...But China's flawed treasury strategy is just too important...
And in addition, I don't see any other blogs that would just describe it in plain language and call stupidity by its proper name. The myth that the you can get a consumer market for your goods by handing over your own money to your deadbeat customers has proved too tenacious; it just won't die by itself. It won't survive even for 5 seconds here in America, especially in the current environment; but when we talk about China, there is never a lack of Nobel prize-winning economists happy to disguise an obvious fallacy with a pseudo-scientific vernacular. Basically, they are exporting toxic economic advise they can't sell at home.
China's entire economy is $4 trillion. Exports are on the order of $1 trillion, exports to the US are approximately 1/3 of this - about 340 billion dollars. If China leaves the dollar to its deserved fate, those exports could drop, let's say for the argument's sake, by half. That's $170 billion revenue lost. To prevent it from happening, China holds 2 trillion dollars worth of treasuries and agency debt. This debt is not going to be repaid. The government behind this debt is a Ponzi borrower that just rolls its balance from one credit card to another. If China's $2 trillion lose its purchasing power to Bernanke's continuous printing at a very modest rate of 8.5% a year, then China is simply paying the US $1 for every $1 of revenue generated. Think BZH offering a $500K incentive to move a $500K spec home. Try that for several years or a decade in a row. Then see how much profit you have made.
So if you listen to these profound theories about trade balance and macroeconomics and market share, then a cowboy who learns that the horse he had bought from a Gypsy trader is really 30 years old should put the horse inside the cart on top of the luggage, get into the harness and pull the cart himself instead of the horse to create a market perception that his investment is not collapsing.