Currency War With China?
Krugman gets it right. Money quote:
“It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.”
They’d face a double loss, because the value of their dollars would go down as well as the value of their treasury holdings.
