That’s all the US needs, for its main bank — which is China by the way — to stop lending to them. That hasn’t happened yet. But China is showing a strong preference for Japanese debt against US debt. From the Gulf News…
China has been buying record amounts of Japanese government debt because it is less risky than US debt, at least in the short term, a Chinese government economist said Wednesday.
Investing in Japanese bonds is safer because so much of the country’s debt is held domestically and the yen is on course to strengthen further, said Zhang Ming, an economist with the Chinese Academy of Social Sciences, a top government think tank.
“Even though the difference in yields is big, China has been abandoning US debt and picking up Japanese debt. This definitely shows that it believes the risks of US debt far exceed those of Japanese debt,” Zhang said in a report issued by his research institute. The report was issued a day after the Federal Reserve said it would buy more US government debt in a form of mild quantitative easing to counter economic weakness.
If other countries follow China’s lead, the US is in big trouble. China picked up almost $20 billion worth of Japanese debt in May. That compares to a paltry $868 million of US debt. This is the hidden side of the “Great Cooperation” between China and the US. China can hurt the US immensely with its foreign holdings policy. The US in theory can stop importing from China but, in reality, such an “embargo” would be impossible to organize and execute. Advantage: China.
