Pat,
I've read that China, within the next few days, is going to obtain its trillionth US dollar. I know its bad for our economy and I've read it is bad for China's economy as well, but no one explains it in stupid people's terms that Ryan and myself could understand. Can you take a shot at it?
Thanks.
3 comments:
But I don't want to understand.
Well, I actually think it's a good thing. The key to understanding this is to think about why they're purchasing these dollars.
They're buying the dollars because they realize American dollars are the best currency to have in their treasury, because most other ones aren't as reliable. Put simply, holding on to dollars is a good investment because we have a Federal Reserve that has an excellent reputation in keeping the supply of dollars stable, and that reputation is better than most other countries.
The alleged "fear" is that China will someday decide to sell off all of these dollars in attempt to undermine the American economy. What the naysayers forget is the second part of the equation: if China sold these dollars off (which they have no economic incentive to do in the first place) someone else would buy them, because they'd be crazy not to.
This whole currency dispute, in concert with the fallacious "trade deficit" (which is a huge farce, but for another day's post), is what politicians use to try and restrain trade with China, which is a horrible idea.
What politicians and liberals continue to fail to understand is that trade is a positive sum game instead of a zero sum game.
Allowing buyers and sellers to engage in free, voluntary exchange with whomever they want at whatever price they want always benefits both parties and makes them better off than they were before. Otherwise they wouldn't be engaging in the trade in the first place.
thanks pat
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