Monday, April 2, 2012

Currency in China vs Debt to China

The US debt owed to China is more important than the $900 billion in US currency China controls. China relies on the US as an importer of the materials it makes and does not want to see the US economy damaged. The foreign currency is unlikely to change US policy towards China, so it is not as important as the US debt. The US needs to pay back 1.1 trillion dollars to China between 2018 and 2038, which means the US will need to balance its budget and reduce spending dramatically. If the US is not able to do that, it will have to borrow money to pay back it's debt, which will leave the US in even worse shape. At some point we will need to sacrifice something to deal with the debt, while the foreign US currency in China will likely never be an actual threat to the US.