tragicomix

China's Hefty Stimulus Package - Bad for the Dollar?

China does not have to sell Fx reserves to finance its expenditure. It will either monetize the additional debt or borrow from the banks. Inflation is down to 4% and may drop to 1 or 2% in a year. Further, overall debt to GDP ratio is quite low. It parks its trade surpluse and capital surplus in US Treasuries. To the extent that its trade surplus may become smaller and capital flows from overseas Chinese reduces, China will have less funds to park in USD. It is a different matter whether the stimulus will yield the desired result: most probably only partially.