As the tensions began to increase over raising the U.S. debt ceiling, the Chinese government made it clear that it was unhappy about the possibility that the United States could default on its debt… any threat by China to stop buying government debt is no threat at all. It would boost growth and generate jobs. This is exactly the sort of rebalancing that is necessary in the long-term and the sooner it takes place the better for both the United States and China. The response to China’s concerns over the risk of U.S. default may help educate its leadership that its current path of buying up massive amount of U.S. assets to support the value of the dollar is not a viable long-term strategy for both political and economic reasons. This realization would be a very positive outcome from this mess.
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