Wednesday, August 8, 2007

Be Afraid? Maybe a Little Bit.

Apparently, China knows how to kick you when you're down. The timing of this with the current US credit crunch is far from coincidental. Not very subtle of the Chinese, which may ultimately be a good thing for US policy.

The good news: Acting on a threat to degrade the US credit picture further is mutually assured destruction, and China knows it. But threats like this can only lead to reconsideration of our debt policy. I notice that Hillary Clinton's been making comments about this and proposing legislation to limit the amount of debt held by foreign investors. This sounds like a spectacularly bad idea. The proper solution, of course, is to have less debt.

For a nice summary on where we are and how we got there, take a look at this WSJ primer.

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