doublenickel

China's 'Problem': Too Much Money

kman makes a good comment that in essence a single homeowner has borrowed a negligible amount of the banks capital, AND, I might add, the bank has recourse through foreclosure. But for a HUGE borrower, who has the ability to break the bank, what would the reaction be? Especially if the bank has no legal recourse of seizing assets. The US is still a sovereign entity, and no matter how much China may want to repo some of what the US has, we have the sovereignty and the military to say, No you won't. Not that that's the moral or ethical response, you understand. It's the "might makes right" response which governments in extremity always resort to.

However, on the flip side, I find the argument which boils down to "China's economic problem is that it has too much money" lets the cat out of the bag. It tacitly admits that the "money" China holds isn't worth anything. Substitute "value" for "money" in the argument and you can see that it makes no sense. Then substitute "fiat currency" and it makes perfect sense.