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Looks like China is pretty much keeping its currency stable vs the dollar and depreciating against the rest of the world, probably to support it’s exporters.
(Note the recent rise in exports and rhetoric regarding the importance of exports.)
This means if the currency is ‘naturally’ strong China is buying $US financial assets to keep it fixed to the $US. The second chart shows holding of tsy secs but China could also be adding agencies and other $US financial assets now that ‘agency credibility’ has been restored.
Seems they are quietly testing the waters to see if Geithner will come down on them as Paulson did.
If we had an administration that understood the monetary system we’d encourage them to do this and export without limit, while sustaining domestic demand with fiscal adjustments (lower taxes and/or higher spending, depending on your politics) which obviously ‘good things’ (again, if you understand the monetary system).
In fact, with the entire world seeming desirous of exporting to the US if only we would let them, a serious level of prosperity is there to be had.