A fascinating story by James Fallows in the current issue of Atlantic Magazine left me with compassion for the Chinese citizen. Instead of spending some of the country's huge dollar holdings to benefit its people, the Chinese government opts to keep feeding the U.S. appetite for debt.
The background for his piece is familiar. The Chinese hold over $1 trillion in U.S. assets, making up around 70% of its foreign reserves. He points out that in just the past decade we've borrowed an equivalent of $4,000 per American from the Chinese to fund our spending jones.
Yet, while children in China still attend unheated schools, the Chinese government continues to plow its earnings back into U.S. dollars, effectively financing our unbalanced budget. And with the plunging value of the dollar, this policy has cost the Chinese people hugely.
This hurts the U.S. economy in the long run, too. In an ideal free trade climate, we would be making and selling the Chinese some of those goods and services that would improve the lives of its residents, instead of selling them I.O.U.s.
Fallow concludes that the trade imbalance is unsustainable. The way it corrects -- gradually or abruptly --could be the most important economic story of the decade, to citizens of both countries.