China Herald: US addiction to Chinese capital

Image via WikipediaSome of us have seen the red light blinking before, but now the US economy is in turmoil, the global financial systems gets more attention than ever. Today is it the New York Times, who wonders why a relatively poor country like China has been subsidizing unsustainable growth in the US.

In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

It seems obvious that the US has to change the way it operates: having an economy bubbling on borrowed money in not a good idea, as we see now.
Part of the action has to come from China itself too. There are very few alternatives for China apart from investing into US bonds. Well, there is one, but that goes very much against the cautious Chinese ways: spending it. Not a bit on infrastructure, that will only generate more economic growth, but on more sustainable growth and consumption.
Up to now, China has carefully tried to change its financial policies, but that has not done very much, as Chinese officials admit in the New York Times.
It seems time for China too, to have a more drastic policy change.

Update: Interesting observation from the Asiabizblog. The New York Times is collecting opinions from people who actually think it was all China's fault. That is the kind of denial often heard from drug addicts. They blame the drug for their behavior.

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Everybody is still trying to gauge what China will do to reverse its current