If you're overspending and you want to pay the bills you have to stop spending in order to pay your creditors. The US has not been doing this. Rather, we have been borrowing more to pay off the creditors.
My point is simply that Chinese dumping of T Bills does not automatically precipitate a financial crisis in the US. A switch in policy could prevent that scenario, although such a policy change does not currently seem politically feasible. And it seems a bit silly to discuss this scenario given the highly unlikely possibility of it even occurring as Doug points out. Jayson Funke Graduate School of Geography Clark University 950 Main Street Worcester, MA 01610 -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Doug Henwood Sent: Thursday, August 09, 2007 11:24 AM To: [email protected] Subject: Re: [PEN-L] uncle sam's banker On Aug 9, 2007, at 11:09 AM, Jayson Funke wrote: > There seems to be an assumption that if the sh*t where to hit the > fan, so to say, and the Chinese were to start dumping vast amounts > of T Bills, that the US is incapable of buying them back. > > Seems to me that such an event would give rise to a perfect > neoliberal ploy/excuse to enact even more severe budget cuts to > raise the required funds no? Why should we imagine that the US > ruling class would allow such an action by the Chinese (which seems > highly implausible to begin with) actually wreck the US economy? > Such arguments make it appear as though the US has no counter > tactics of its own. The U.S. would buy them with what? The whole reason we're borrowing so heavily from abroad is that we don't have the domestic savings, and we're running a giant current account deficit. You'd have to have a deep recession to close a c/a deficit that's 6-7% of GDP. But I doubt the Chinese would dump their holdings of Treasuries. They'd be screwed too - their $1 trillion in reserves would tank in value, and there'd be no one to buy their exports. Doug
