Nick


I’m in a debate with someone who says we do not borrow money from China. He says Americans by bonds and sell them to foreign investors.

4 Responses to “How do we borrow money from China?”

1. OPM on May 20th, 2009 5:08 am

   China was until quite recently loaning $1 billion per day to the United States. Most of this is the direct granting of credit either at the Treasury auction or by selling goods on time, or in the case of WalMart, on consignment. An item made in China, sold in Walmart, has about a 2/3rds chance of not being paid for until after the sale in the United States. So much is selling now and waiting to be paid later.

   There is a little bit of China buying debt on the open market, but most of that is maturity management. China also has directly extended credit to the United States Government outside the auction process. Direct indebtedness of the United States to China, as a percentage of debt, has already peaked. About six months ago, however, China indicated that it was tired of loaning money. Now you see the banking crisis from the end of the free money.

2. jack j on May 21st, 2009 9:13 pm

   pretty soon china’s dollar will be worth more than ours the way this economy is going

3. senior2tor on May 24th, 2009 8:06 am

   If there is a middle man it is the same difference. But every day millions are paid for the interest on the loans to date. If we need more it is all done on paper. Walmart pays them our dollars so they have plenty to loan the next time round..

4. ideogenetic on May 27th, 2009 12:57 am

   Trade deficits. The Chinese sell us their goods in dollars. They take those dollars and buy our bonds, stocks, land, companies, etc. They also buy our dollars (since they are becoming worth less and less) to try and prop up our ability to buy their exports (keeping our import prices from China constant).

   So, they not only buy our bonds, they buy our dollars. That’s how China loans us money.

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