I am indebted to Andrew Ross Sorkin of The New York Times for following up on my blog from Friday asking whether the Chinese would “weaponize” (his term) their holding of $1 trillion of U.S. government debt. Here is his piece.
He notes that the usual experts don’t believe China would ever do anything with its holdings that would cause the value of those holdings to decline.
But the impending confrontation with China is not necessarily about rationality. As Sorkin notes, “Brinkmanship does not breed rational thought. The escalation of hostilities, even economic ones, raises both stakes and tempers alike, which is a dangerous combination.”
In the current climate, I have no doubt that the Chinese would absorb short-term losses to achieve a larger, long-term goal of teaching the foreign devils a lesson.
