Why is the balance of payment position between china and US is of concern to holders of USA government bonds?
Answers:
Because the Chinese keep buying all the U S bonds and driving the interest rate down for the rest of us. If they would just stop buying for a while we might see interest rates on 10 year bonds back up to about 8% where they belong.
If china sold all of its US gov bonds, interest rates would skyrocket and holders of bonds would loose lots of money because the new bonds would have a much higher rate of return so the old bonds could fall below the value of their original investment. China knows its power but needs the US healthy to continue its growth and military expansion. Creating a new monetary fund out of the currency and bonds it controls could set up a disturbing condition competing with the Fed and the IMF.
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