The reporting on the U.S.-China relationship is approaching the absurd. The NYT tells readers that:
"Analysts said the United States seemed eager to play down areas of friction like China’s currency policy, in part because the Obama administration does not want to antagonize Beijing, its largest foreign creditor, when Washington is running a yawning deficit."
Okay, let's look at this more carefully. What is China's currency policy? Well, they want to keep their currency from rising, even though the country has an enormous current account surplus. How does China keep its currency from rising? It's very simple, they buy up huge amounts of dollar denominated assets.
Buying up dollar denominated assets means lending the United States money. This is the same thing. China "manipulates" its currency by buying up huge amounts of U.S. government bonds or short-term deposits.
In other words, we are supposed to be upset about China lending the U.S. money, but we won't complain about it too much, because we need them to lend us money. It's easy to understand how these people can miss an $8 trillion housing bubble.
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