Those Inscrutable Chinese

| Sat Feb. 12, 2011 5:40 PM EST

James Galbraith attends a roadshow sponsored by the Peter G. Peterson Foundation and reports back on a presentation from David Walker:

Mr. Walker warned that “foreign lenders... can’t dump their debt but can curb their appetite” for new US Treasury bonds. This was an oblique reference to the yellow peril. The idea, when you think about it, is that the Chinese central bank will acquire dollars — which it does when China runs an export surplus — and then fail to convert them into Treasury bonds, thereby choosing, voluntarily, to hold dollars in cash, which earns no interest, instead of as Treasury bills, which do. Mr. Walker did not try to explain why this would appeal to the Chinese.

Good point. Anyone in the studio audience care to take a crack at this?

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