Anyhow, Gordon has decided to examine the CCP's situation regarding its massive holdings of American debt (Weekly Standard), something into which I delved last year. I am happy to say that this time, Chang not only agrees with me, but echoes the very same arguments I did, including the most critical one - the reaction of the rest of the world:
What would happen in the worst case scenario if the Chinese central government decided to dump U.S. Treasuries? Beijing would have to buy something with the proceeds of its sales. As a practical matter, it would have to buy debt denominated in pounds, euros, and yen. The values of those currencies would then skyrocket. London, Brussels, and Tokyo would then have to try to depress the values of their currencies, which means they would have to buy . . . dollars. In short, there would be a great circular flow of cash in the world's currency and debt markets.
There would be turmoil in those markets, but it would not last long beyond the time the Chinese ended their dollar dump. And we would end up in just the same place that we are now, except that our friends, instead of a potential adversary, would be holding our debt. Global markets are still deep and flexible and can handle just about anything. The fact that Beijing has not employed its so-called nuclear weapon is an indication that the Chinese know it is not, as a practical matter, usable.
I would add one more ironic twist for those who are simply worried about American debts and deficits in general (not an unfounded concern): the odds are far better that our allies and friends could convince us to slow down our rampant spending at home - in part because more Americans would be willing to listen and in part because none would be so dependent upon Americans importing their goods as the CCP. This is probably why, as Chang notes, the cadres have suddenly stopped hectoring us about our excessive borrowing - because they desperately need to keep lending to us.