China also provides the U.S. with high quality goods at a very low cost. It's not like there is no benefit.
At the end of the day the dollar is the worlds reserve currency but the U.S. needs to be careful because if that ends up not being the case we are truly in trouble. China and Russia have tripled their gold reserves and I would be foolish to think the rest of the world is not looking to dump the dollar as well. They obviously can't now as there are no alternatives still but the dollars status as the worlds reserve currency will be quested hard during the next crash.
There aren't enough gold supplies to use it as reserves. China and Russia are looking to build cryptocurrencies that are gold-backed but there are problems with the idea as well. The main problem with reserve currencies is that nobody really wants to be the reserve currency. They look at the potential benefits but then they run into the problem that the US does - everyone wants to weaken their own currency so that they can export more and you don't have as much control over that because you're the reserve currency.
Japan gets some of that because they are a safe-haven country - when there is turmoil, there is a flight to the Yen - even when Japan wants a weaker Yen. It's a case of be careful what you wish for.
MacroVoices has a piece on why the Yuan dropped earlier this week. It's the best explanation I've heard. It also explains why China can't dump Treasuries - they use Treasuries as the basis for their internal monetary system. When they sell Treasuries, they have to shrink their monetary base. It also explains their dollar shortage and why the Yuan dropped - basically China has a set of choices, all bad.
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What little I understand about Chinese culture is that they'll self-immolate, in theory, to destroy an enemy of the state. The country as a whole would rather go so into the red to ruin the future for future generations than let the Americans win.
That may have been true when everyone was poor. When you have a wealthy population, they will look at their options. China has a lot of problems. You have the wealthy in the East, some better off in the middle and a lot of poor in the west. The middle wants what the east has and the west wants what the middle has. It's really big-time income inequality. I was there in the mid-1980s and the mood was upbeat even though the typical pay was $30/month. Things were improving and that helps the human condition.
When people have a lot and you take it away, people can get very angry.
The scary thing is 1.3 billion angry people.
Louis Gave who lives in Hong Kong did a podcast last night; it's pretty interesting stuff though I haven't listened to the whole thing. I think that he's going to do a few more of them. There's a great MacroVoices podcast on the Yuan devaluation (I may have already mentioned this). The Gave podcast is at that site too.