What China Legitimately Fears

 

by Mario Rizzo

 

The U.S. Treasury, the State Department, and Larry Summers are all keen to convince the Chinese government that all they have to fear is fear itself when it comes to their investments in Treasury securities. After all, the U.S. will honor its obligations.

 

Frankly, I am amazed at the U.S. response. Yes, I realize that there is little else they could say. The default risk of holding U.S. securities is indeed quite low. But you don’t have to be very smart to realize that this is not the relevant risk. Continue reading