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Because they buy our bonds. They need a safe place for all their cash and the U.S. has ever defaulted on its debt payments. So they loan us back the money we already sent there.
Echo what Rick Lee said, plus add that China's investments in U.S. Bonds helps prop-up the U.S. economy allowing it to keep buying stuff from China. Not a bad situation, eh? Loan your customers money so that they'll keep coming back to your store.
Wonder what will happen if the Chinese lose faith (with the U.S. economy now faltering) and pull out the supports that keep the economy at least where it is, even as bad as that is.
China's approach to economic development has turned the country into a lopsided giant, an export juggernaut with one huge financial arm. Chinese businesses use cheap labor and cheap capital to compete on the world market, with ever-increasing effectiveness. Beijing continues to subsidize exports heavily. It does so directly, through favorable loans to businesses and favorable exchange rates to foreign buyers of Chinese goods. And it does so indirectly, through what economists call "financial repression," whereby the government imposes controls on the investment of Chinese citizens that allow it to funnel capital into Chinese businesses.
The People's Bank of China has gathered a good portion of the enormous trade profits and cash inflows. At the end of 2009, it held $2.4 trillion worth of foreign exchange. This is the largest amount of foreign exchange owned by any central bank in the world -- and it does not even reflect the reserves held by China's major commercial banks. What is more, the figure is likely to grow by another $300 billion in 2010.
Corruption, rising inequality, restricted freedoms, and environmental damage are challenges to the Chinese Communist Party, but their hold on power is likely to remain secure so long as it can continue to develop China's economy and create jobs.
Last edited by grumpygramma; 04-15-2011 at 08:09 PM..
Reason: too many words
Because the US citizen consume more than they produce. They are not as productive as their consumption may suggest. All of this is borrowed, not paid for. Sooner or later, US citizens must either consume less or produce more and be more competitive on the world markets. Otherwize, the system will collapse (wich is not that far away...).
part of why we ( the U.S.) is so far in debt to China, do you all remember those stimulus checks we were so happy to receive, well there is some of it, that was a smoke screen so we wouldn't seethat the U.S. was selling bonds to China, after we spent all that money we couldn't very well bit*h about it or what the Government was doing because we did spend that money and we are as guilty as our
politicians.
China may or may not sell our bonds to pull thier money out of the U.S. but right now that would not be advantageous to thier economy.
My fiance(e) born and raised and living in China tells me that things are becoming better for the common worker, thier pay rates are going up, the prices of food is going up but that happens every year for the spring and summer, things in general are getting better or so she says.
Because the US citizen consume more than they produce. They are not as productive as their consumption may suggest. All of this is borrowed, not paid for. Sooner or later, US citizens must either consume less or produce more and be more competitive on the world markets. Otherwize, the system will collapse (wich is not that far away...).
For the same reason I owe my cable company so much money. I'm addicted to what they sell, they can keep raising the price with impunity, they can deliver their product cheaper than I can get them elsewhere, they are bigger and more powerful than I am, and they want me to be beholden to them.
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