1). Interest and principle on USTs are paid in USD, so the notion that the Chinese government simply "wants to send those dollars back to the US" is bunk since they're ultimately getting more back
2). If the Chinese government wanted to directly influence USD value, they could also simply hold onto the USD as currency reserves to take it out of the market / reduce supply
By buying US debt, China is doing the same as the Fed: lowering yields/increasing prices of USTs via increased demand. This allows the government to keep borrowing large amounts, which in theory should offer the cash needed to continue buying Chinese goods.
Moreover, USTs are by far the most liquid high-grade paper available. Pretty much the only possible investment to support volume of the size China needs.
And, while not likely to be used in the near term, this is absolutely an investment in defense. Chinese officials have openly supported the notion that large holdings of Japanese debt could be used as a crippling weapon, why wouldn't that apply to the US?
>And, while not likely to be used in the near term, this is absolutely an investment in defense.
How? By dumping them below market rate? US/JPN will just print money and buy them.
If ever there is a war between these nations, these bonds become worthless overnight. Make no mistake, these T bonds are liabilities for China, not the other way around.
If the Chinese gov did that after loading up on gold, and backed the chinese currency with a fraction of gold, they would have a much better chance of convincing others to drop the US dollar as a reserve currency.
1). Interest and principle on USTs are paid in USD, so the notion that the Chinese government simply "wants to send those dollars back to the US" is bunk since they're ultimately getting more back
2). If the Chinese government wanted to directly influence USD value, they could also simply hold onto the USD as currency reserves to take it out of the market / reduce supply
By buying US debt, China is doing the same as the Fed: lowering yields/increasing prices of USTs via increased demand. This allows the government to keep borrowing large amounts, which in theory should offer the cash needed to continue buying Chinese goods.
Moreover, USTs are by far the most liquid high-grade paper available. Pretty much the only possible investment to support volume of the size China needs.
And, while not likely to be used in the near term, this is absolutely an investment in defense. Chinese officials have openly supported the notion that large holdings of Japanese debt could be used as a crippling weapon, why wouldn't that apply to the US?
http://www.telegraph.co.uk/finance/china-business/9551727/Be...