by Ed Morrissey
The debate over whether to keep borrowing trillions of dollars may have been mooted on Friday. China sent out strong signals at the end of last week that it would retreat from the dollar and perhaps start to unload its reserves sooner rather than later
China won’t dump the dollar any time soon. They need the value of the dollar to remain strong to protest the reserves they already own. The collapse of their high-speed rail bubble means they can’t afford to go to economic war with the US at the moment, assuming that they were inclined to do so at any time. It does mean, however, that Treasury will have to work much harder to sell its bonds, which will force yields up and increase the debt service, and may mean that we won’t find many buyers at all. If China stops buying, the next best customer is Japan, which won’t be able to afford more bonds for years; in fact, they may have to sell theirs to fund their recovery efforts from the quakes and tsunamis of 2011.
Who else will come to our rescue? The Saudis? Don’t bet on it.
We are rapidly approaching a moment of truth. While we debate the finer points of raising debt limits and calculating just how many hundreds of billions of dollars in annual deficits we’ll tolerate, the truth is that the money to fund any deficit spending may soon run out. Fiscal sanity may wind up being imposed on us if we don’t choose that path willingly.
http://hotair.com/archives/2011/04/25/china-sends-warning-on-us-debt-dollar/
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