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It wouldn't work in China's favor in the mid-to-long-run scenario, because the US has the trade weapon.  China wants -- and for now, I think, needs -- access to the US market.  Plus, a US default simply leaves China with a bunch of IOUs.  It's in China's interest to get the money back and maintain access to a reasonably healthy US market.

Now by that I don't mean that China will not do something stupid like calling our debts, but I'm simply saying that I don't see it as being in China's interest.

WHEEEEEEEEEEEEEEEEEEEEE!

by Drew J Jones (blahblahblah@blahblahblah.com) on Sun Aug 27th, 2006 at 10:14:23 AM EST
[ Parent ]
There is one possible exception to this. If the value of the dollar were to take a sudden plunge, then the value of the debts held by Japan and China would go with it. They could panic and start unloading them before it got worse. That would likely accelerate the plunge. Japan and China have many reasons why they would not like to see a scenario such as that and thus they continue to support the status of the dollar. Russia, however, does not have a vested interest in the value of the dollar. As their reserves from the energy market continue to grow, they acquire the power to precipitate such mischief.
by Richard Lyon (rllyon@gmail.com) on Sun Aug 27th, 2006 at 10:41:48 AM EST
[ Parent ]
All excellent points.

WHEEEEEEEEEEEEEEEEEEEEE!
by Drew J Jones (blahblahblah@blahblahblah.com) on Sun Aug 27th, 2006 at 10:50:02 AM EST
[ Parent ]
Excellent points indeed. I'd love to hear what the economists among us (or even the investment bankers :-) have to say on this.

Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.
by Bernard on Sun Aug 27th, 2006 at 12:44:36 PM EST
[ Parent ]

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