We Want to Underpay!

I was watching an interview on PBS' Newshour with China's Vice Chairman Cheng Siwei yesterday, and in some ways I found it quite interesting. I could write several blog postings about the interview, but you'd be better off reading (or watching in streaming video or hearing on streaming audio) the whole interview at the Newshour page. The one thing that did strike me during the course of the interview (indirectly) was that essentially the US wants to underpay its debt to the Chinese! How? Well, we have built this huge surplus with China, all along paying for it with IOUs (Chinese buying Treasury bonds). Well, all the talk of revaluation has focused on our desire to reduce the trade deficit, which is probably true. However, one point that's missed out is that if China revalues the yuan, the debt in $ is now worth less yuan. You can then see why the Chinese have a good reason not to be thrilled about having to lose even the measly return they have been getting on Treasuries.