Borrowing from China

The talks by our Secretary of State and Secretary of the Treasury with the Chinese about U.S. borrowing have once again created some mushy commentary by the talking heads. They speak in terms of how much U.S. debt China will be willing to buy in the short-term and in the long-term.

No one has thought to mention that those amounts depend almost entirely on the volume and balance of trade between the two countries. If the U.S. trade deficit (and Chinese surplus) grows, it will be necessary to borrow more to finance it. If trade shrinks, less borrowing will take place.

If the willingness to borrow changes independently of the financing needs of trade, then the trade will have to adjust. Either way, the two are linked, and it is foolish to talk about them as if there is no relationship at all.

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  1. Liazet P. says:

    China’s central financial institution once again bumped up the level of cash reserves the nation’s banks must hold. The move is a try to curb Chinese inflation that is emerging as a serious threat to a global economy reliant on cheap Chinese exports. Donald Trump, who has suckered the media into believing he may run for president, has offered a solution to Chinese rising prices that involves a 25 percent tariff on Chinese imports, a suggestion that has been universally debunked by people who know something about such subjects. I found this here: China struggles to curb inflation that threatens global growth