China’s American Bailout?

The US economy focuses on spending, and the Chinese economy largely focuses on saving and lending to the US – “a pattern that has suppressed global interest rates, helped to reflate the developed world’s leverage bubble, and, through its impact on the currency market, fueled China’s meteoric rise,” suggests investment banker Alexander Friedman writing for Project Syndicate. He points out the Chinese investment is driven by the People’s Bank of China: “The fact that a single institution wields so much influence over global macroeconomic trends has caused considerable anxiety” – for China, the US and many other countries that that rely on stability of the world’s two largest economies. Chinese leaders are reducing available credit, while trying to prevent inflation and unrest. Friedman urges the US Federal Reserve to prepare for a potential sell-off of US debt by foreign investors – that could entail continuing its own policy of quantitative easing, purchasing its own bonds to keep interest rates low and even assisting Chinese banks if financial crisis hits them hard. – YaleGlobal