Doesn't USA have some 10 trillion loan from China? How does that factor into all this? Or is that a parallel issue not directly related to this?
The U.S. debt to China is $1.19 trillion as of March 2018. That's 19 percent of the $6.29 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $21 trillion national debt is owned by either the American people or by the U.S. government itself.
https://www.thebalance.com/u-s-debt-to-china-how-much-does-i...
Also:
China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America's foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve.
from https://www.reuters.com/article/us-usa-trade-china-treasurie...
Of course that analysis leaves out the skills, experience, and intellectual property they also got. That's more significant than dollars.
Both nations are tied pretty tightly together in trade.
Put another way: one way, the easiest for the US, to reduce the deficit is to reduce consumption. This will happen more or less automatically with increased prices.
Another way is for the dollar to tank, which will also reduce consumption and increase exports.
The ideal situation (for Trump I assume) is to keep a strong dollar, increase exports, keep consumtion high and get the financing the US wants. It is difficult to see how this can be achieved, or whether this is fair for 95% of the planet's population, most of which are poorer and work as hard or harder than americans.
1) The Fed won't simply buy them all up, then unwind their position over the next few years.
2) China won't be subject to extraordinary DPRK-like secondary sanctions, minimizing China's ability to trade with those dollars and thus limiting the inflationary effect of those newly-printed proceeds.
3) The US will not retaliate with other coercive measures, like sector-wide sanctions on strategic Chinese market sectors, elimination of MFN status, removal from WTO, military pressure in the South China Sea, etc., which combined are likely more than enough to dissuade China.
It would certainly be an escalation and the US would respond but its pernicious in its attack of the free market values of the US. Any response would be tacit admission that there are flaws in the capitalist system and as a result it would be more subdued than otherwise.
Any attack would not be motivated by money. It would be a striking blow at a weak US to knock it down from its super power perch.
I also don't see how a US response is somehow an attack on free market values. Dumping $1.2T of Treasuries onto the open market is not normal market activity. It's an attempt to manipulate and distort the market.
China wants to surpass the US, but while such a stunt might harm the US, it would do immense damage to China. I think it would be more like a striking blow alienating China from much of the global economy and financial system for a long time to come. That is surely not the route to surpassing the US as the preeminent world power.
So China has some disincentive to pushing down the value of the U.S. dollar lest that debt be worth less in the future, in addition to its desire to keep it up so we can afford to keep buying Chinese products.
Complex interrelationship. I think it’s safe to say there are no important issues that don’t play a role in this calculation, except human rights and environmental issues since there’s no indication that Trump would push on those anyway.
http://ticdata.treasury.gov/Publish/mfh.txt
China has $1.2 trillion, as of April 2018. Total foreign ownership is $6.2 trillion (this includes individuals, companies, countries, though it may miss some). Total debt is $21 trillion.
That's a fairly large caveat. Zimbabwe tried it and it didn't work out too well. The Weimar Republic also tried it to similar effect.
Also inflation does not just happen if you print money. The increased demand has to meet a lack of supply. Most historical cases of hyper inflation involved disruptions to supply capacity. America is not really in that position, and I suspect this is one of the reasons we see few signs of inflation these days in America.
Zimbabwe has destroyed its farming output, Weimar had its industrial region occupied by France.
The US and EU have been running quantitative easing programmes for nearly 10 years and inflation is low.
It’s not pure cause and effect.