China muscles up to America using US debt

China muscles up to America using US debt

US debt has reached alarming levels. It's set to hit $14.3 trillion, a figure that if you did the simple arithmetic comes out to $48,081.66 per person in the US.

But the politically contentious part is that China is now America's biggest creditor, holding the biggest slice of those US Treasuries. Why is it politically contentious? Because , it might be quite tempting for the Chinese to phone up and say, "We really disagree with you about Taiwan and Japan and North Korea. You'd better listen to us, because otherwise, People's Bank of China starts selling ten-year treasuries. If we do that, you guys are dead."

You don't believe the Chinese would do that? It's happening now. Check this report about the latest revelations from Wikileaks that the Chinese put pressure on the US Treasury secretary Timothy Geithner in June 2009 to lean on regulators at the US Federal Reserve to speed up the approval of China's $1.2 billion investment in Morgan Stanley. China's deal to buy Morgan Stanley shares was announced the very next day. Funny that. The cables show they also put pressure on the US about Taiwan.

China is America's biggest foreign lender and the US is China's top export destination. We are now seeing a picture of an emerging power flexing its muscles. And with US debt out of control and building, we can expect more of this sort of political pressure to happen. China will use its US Treasury holdings to shape US policy and markets.


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