Why China Still Loans Money To The U.S.

China is a huge critic of U.S. government wasteful spending yet continues to loan the U.S. money in various forms. Why? Because it already owns $1.5 trillion in U.S. debt and a U.S. financial collapse could destroy the value of those holdings. How easily could such a collapse come?

China need only put away its check book and the U.S. government would be in dire straits. How is that for a national security issue? China can squeeze the U.S. government with the click of a computer keyboard if it wants to. But if it takes too strong an action, it threatens its biggest marketplace as China manufactures much of what Americans buy.

And if the financial markets come to believe China is ready to sell off its U.S. debt, a panic would ensue taking down the value of China's holdings with it, as buyers would pay pennies on the dollar. So for now, this shotgun marriage will continue.

Dick
To learn more about the China - U.S. financial relationship, please see "China's Treasury Holdings Make U.S. Woes Its Own," New York Times (6/19/11) http://www.nytimes.com/2011/07/19/business/china-largest-holder-of-us-debt-remains-tied-to-treasuries.html?_r=1&nl=todaysheadlines&emc=tha24