The time may be ripe for China to call in part of its nearly $3.5 trillion worth of US Treasury securities, steering the global economy into uncharted waters, says Alexander Friedman, an investment officer for UBS Wealth Management. The reason, says Friedman, is that China no longer depends on a strong dollar to fuel its export industry, and that cashing out on some of its dollar-backed securities may provide the Chinese government with some cash as it attempts to transition its economy to a consumer-oriented one similar to the United States’.
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What’s the Big Idea?
Through the first decade of the twenty-first century, cash infusion from China fueled growth in the United States to the tune of nearly $3.5 trillion. The economic effect of China selling off its US debt would include a dollar of much lower value, possibly derailing a fledgling recovery from the financial crises that have consumed half a decade. Against the prospect of a Chinese sell-off of US debt, “the US Federal Reserve, rather than focusing only on ‘tapering’ its monthly purchases of long-term securities,” should be prepared to continue its policy of quantitative easing.