The Perils Of Prostitution

I’m going to give you a glimpse at my current research area without torturing you with models and data.  You’ve probably noticed I’ve been less than consistent with my blogging since the end of semester in mid December.  This will continue awhile as I torture trade theory, exchange rates, and the world financial system in pursuit of a few pubs.  However, I still am, at heart a teacher and I like to answer questions. 

I’ve gotten a lot of questions recently about the current economic stimulus package in terms of increasing the U.S. debt.  Many of my students ask me what would happen if China simply decides one day to stop buying our Treasuries or dump all the ones they own, at once, on the market. The answer is worldwide chaos but unlikely to happen.  However, there are things afoot that could make it likely that the Chinese might not buy further debt and could slowly shed its current portfolio holdings of both dollars and debt.  This could have enormous ramifications for our ability to stimulate the economy via debt financing as well as maintain the dollar as the world currency.

It is also possible that the other sovereign fund countries ( that would be the oil producing countries) may also stop buying further debt.  It’s easy to explain that.  Less oil revenues means less free money to invest.  But what about China? 

This is really a side show to what I am currently studying which is monetary policies, trade, and exchange rate policies.  But, it is an interesting sideshow. So here’s some questions, some discussion, and enough information to be mildly dangerous.  What about China?

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