08/03/2014 - U.S. & China Financial Repression Is Preventing Their Economic Recovery China’s Risky Play in the U.S. Debt Market
READ: China’s Risky Play in the U.S. Deb t Market Caixin Online 07-31-14
CATO Institute Senior Fellow James Dorn explains how & why China has been picking up the pace of its purchases of U.S.Treasury Bonds recently, but “both it & the U.S. would be better off if China relied less on the accompanying investment & export-led model”
.. China is supporting U.S. Treasury bond prices from a desire to stimulate its export growth & to protect its state-owned enterprises, not out of the goodness of its heart to help the U.S. to finance debt & deficits
.. “Financial Repression in China and in the United States (with negative real interest rates) distorts the global allocation of capital. China, as a capital-poor country, should not be a net exporter of capital. By controlling capital flows, suppressing interest rates and pegging the exchange rate, China continues to rely on investment and export-led development. That model of development, with the central role of state-owned banks and enterprises, is not sustainable, as China’s leaders have noted
.. It is in China’s long-run interest to downsize its holding of U.S. debt by ending financial repression and allowing a greater play of market forces. A virtuous outcome would be to deny the U.S. government the means to over-leverage and overspend, while invigorating China’s non-state sector by releasing scarce capital for private investment.”
