I.O.U.S.A - Addison Wiggin [99]
and China. China, for many, is a mystery at the best of times.
Policy making in China is opaque. So there are a lot of concerns that China ’ s somehow going to sell all of this debt and walk away from the American economy. But it ’ s a little hard to see that taking place very quickly. China is a very conservative investor. They ’ re holding U.S. Treasury bonds because they consider those to be very safe investments. They ’ re suddenly a rich investor with lots c15.indd 201
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Interviews
of money and they want to be safe. They ’ re like any rich person —
they want to hold on to their money; they don ’ t want to be poor again. It ’ s hard to imagine some kind of wholesale pullout from the U.S. bond market, partly because China ’ s such a big player right now. If any big player walks away from the table, that weakens the pool. China would be shooting itself in the foot by suddenly selling lots of Treasury bonds. Could they theoretically do it? Yes, but it seems quite unlikely that there would be a wholesale change very quickly.
Q: Let ’ s just say hypothetically China divested — imagine a worst -
case scenario where they said, “ We ’ re only buying euros and other currencies and we ’ re moving away from U.S. Treasuries. ”
Explain to me what that scenario would mean to an average American who has a mortgage and has a job. What ’ s the domino effect of China changing its investing strategy?
James Areddy: The fi nancial markets that we cover get very nervous about any kind of change in China ’ s policy, and they have a very diffi cult time fi guring out what the policy is going forward. Probably the scariest thing for them right now would be if China were to stop buying Treasury bonds. It doesn ’ t seem very likely, it seems an almost impossible situation that they ’ d suddenly stop. But if they were to stop buying U.S. Treasury debt, it would likely hurt the global economy, and it would probably send U.S. interest rates higher, making it much more expensive for people in the U.S. to buy homes, to buy their cars, fi nance their credit card debt, all kinds of things.
But it seems a very unlikely scenario that they would even stop.
Q: Is it true that what ’ s good for the American economy is good for the Chinese economy? If so, do you see that in the stories that you cover?
James Areddy: China and the U.S. are linked economically; there ’ s no doubt about it. They certainly share lots of the same interests, and there ’ s bound to be a little tension between the salesman and the buyer. But at the same time, one wouldn ’ t exist without the other one. I think, increasingly, the relationship between China and the U.S. is growing tighter, at least economically.
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Q: The trade defi cit: is that sustainable? Can that go on forever or at some point do you have to balance this sort of thing out?
James Areddy: One of the things that we constantly ask economists is, can the trade defi cit in the U.S. be sustained? Can China continue to go on selling much more to the rest of the world than it buys? And can the U. S. continue to absorb so much more from China than it ’ s exporting to China? There are economists lined up 10 deep on either side of that situation. There really isn ’ t any simple answer. I don ’ t have an answer, and we continue to ask the question because there doesn ’ t seem to be any consensus about whether the trade defi cit in the U.S. with China is a good thing or a bad thing, a sustainable thing, a dangerous thing. No one really knows.
Q: Is it true that the Wall Street Journal has offi ces all over the world, and, if so, how important would you say this story is?
Do you feel like you ’ re covering an important story for your news organization?
James Areddy: The Wall Street Journal has more staff outside the United States than any other major newspaper, and China is a very big story for the paper. We see it in our reader comments; we see it from every aspect.
Q: There ’ s world news and then there ’ s fi nancial news. In