Let no one fool you - specially not the Wall Street "news makers.
Both the US and Chinese Economies are in lockstep and the US economy could get in big trouble because of that.
The
investment relationship that has blossomed between China and the U.S.,
even though it has benefited both countries, has also made both of their
economies very dependent on each other, but the US more so than China.
Chinese
companies have started more companies or joint ventures in the
U.S., thereby increasing the number of Americans working for Chinese
firms.In a sense China has now also become a supplier of secondary
capital to the USA, in addition to the regular US debt they have been
buying up..
Another alarming fact is that based on the present (June 2015 figures) US debt to China stands at $1.272 trillion,.
That's roughly one-fifth of the
$6.175 trillion held by foreign countries. The rest of the $18 trillion
debt is owned by either the American people, or by the U.S.
government itself.
The United States has thus allowed
China to become one of its biggest bankers, to provide the American
people low consumer prices.
This selling of debt to
China is mainly used by the US to help the US economy to grow by funding
federal government programs. It has also kept U.S. interests rates
artificially low. However, what very people want to talk about,
specially the financial world, is that China's increasing ownership of
U.S. debt is shifting the economic balance of power in China's favor.
China's position as America's largest banker also gives it considerable political leverage.
Consequently every now and then China threatens to sell part of its US debt holdings.
It knows that, if it did so, U.S. interest rates would rise, which would
slow U.S economic growth to a trickle.
As China grew
economically stronger it has also been calling for a new global currency
to replace the dollar, which is presently used in most international
transactions.
China usually makes this call whenever the U.S. lets the value of the
US dollar drop, which makes the debt China holds less valuable.
China
certainly is not so stupid to call in its US debt all at once. If it
did so, the demand for the dollar would plummet like a rock. A dollar
collapse would disrupt international markets worse than the 2008
financial crises and China's economy would suffer along with everyone
else's.
It's more likely that China will slowly begin selling off its US Treasury holdings.
Bottom
line the financial poker game between the two most powerful economic
players in the world is certainly not over yet, but China is holding
some very powerful cards in its hand.
The financial world better sit up and start smelling the roses.
EU-Digest
