Posted on Sunday, June 7, 2009
The Chinese don’t consume as much stuff as we do. So they produce it and send it here (meaning they export to us). We buy it, thus giving them our dollars. Rather than invest all of our dollars we pay them for their stuff in their own country, they invest the money in our Treasuries, making the Chinese our largest lender. This is why Tim Geithner was so concerned about making the Chinese comfortable with our economy on his recent visit to China. If they decide not to buy our Treasuries or decide the investment is riskier then before, they can demand a higher rate of return (the relationship between investment riskiness and rate of return is explored in detail in the book "Foreclosure Nation") which will cost us all. And at the moment, as much as we all hate to admit it, they should be just a tad concerned about their investments in the U.S.