Monday, November 23, 2009

Funny, honest (if somewhat economically naive) send up of US-China relations

China is not lending us money out of the goodness of its heart, or even because its making a bet on our debt--buying treasuries is the best way for China to maintain its artificially low yuan peg to our dollar, which requires making the dollars we send them disappear. If they didn't control the supply of dollars relative to the supply of yuan in this way, the yuan would appreciate relative to the dollar, and China's labor cost advantage relative to the US would erode, which would create even more stress in China's economy, which is struggling with more unemployment and wealth disparity than the U.S.

China does not want the proverbial Tea Party to rear its head. Think about that next time you hear about "all the tea in China".

UPDATE: Gary Becker has much more, and he is much smarter. The fact that his partner-in-blog disagrees gives me even more confidence in Becker's thesis.

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